As equity market volatility has surged this month as a result of Covid-19 uncertainty, one group of investors has been buying shares in record amounts: insiders.
Armed with the most information about their companies, company executives and directors have been taking advantage of the lower share prices on offer, and buying substantial amounts of shares for their personal accounts. Indeed, so far this month, company insiders worldwide have snapped up €87 million worth of shares, the most since 2015.
High levels of insider buying
This pattern of insider buying has been highlighted in an article from our partner Bloomberg: Corporate Insiders Send Most Bullish Stock Signal Since ‘99.
The article, which uses 2iQ Research’s insider data, highlights the fact that in the first half of March, insiders globally bought 4.5 times more equity in their own firms than they sold. This represents the highest global buy-to-sell ratio since 1999.
Author Justina Lee also notes that 2iQ’s data shows that in Europe, insiders have bought €21 million worth of stock so far in March – the highest level since late 2018. Buying has been particularly pronounced in the energy and financials sectors.
Lee says that this buying pattern is a sign that executives now see their companies as “alluringly cheap” after the 30% plunge in the MSCI World Index from its record high.
Has the market bottomed?
In the past, high levels of insider buying have often been a signal that markets or stocks have bottomed. For example, research has shown that insiders are more likely to buy when their stock trades near 52-week lows. This is due to the fact that company executives and directors tend to have better information in relation to their companies’ future prospects and earnings than anyone else.
So, the high level of buying this month could be interpreted as a bullish signal. As 2iQ managing partner Patrick Hable said to Bloomberg: “Insiders are buying massively and in the past they have had quite good timing to pick the market bottom.”
Corporate insiders are sending the most bullish signal in a decade! https://t.co/YkXJ2hCC6q— phable (@phable) March 17, 2020
Ultimately, time will tell if insiders timed their purchases well on this occasion. If history is anything to go by, however, the high level of insider buying we have seen this month indicates that the outlook for equity markets may not be as bad as some investors fear.