It is not the professional trader or the smart fund manager, but the government itself and the boards of directors of the companies that intervene to buy a collapsing stock and provide immediate support to prevent it from collapsing due to foreign exit or negative news that has caused panic in the entire market.
📍A company buys its own shares to save the reputation of its projects
When companies face a large sell-off as a result of a foreign investor exit, a significant decline in business results, or market panic, some companies resort to buying back some of their listed shares according to a declared schedule and official disclosure to stock exchanges, in a step known as 'share buybacks'; this procedure usually aims to:
* Price support: reducing supply in the market and increasing demand through purchases restores some balance to the price.
* Sending a message of confidence indicating that management believes strongly in the company and its current share price is lower than its fair value.
📍Governments are benevolent market makers
At other times, it is not just the company that acts, but we find the government or its investment arm, such as the sovereign wealth fund, intervening to protect a strategic stock, which could be a national bank or an energy company or a company representing an important economic symbol for the state.
📍When does the benevolent market maker appear?
* When there is a sudden and large exit of a foreign investor, it can create unjustified price chaos.
* The stock is linked to the confidence of both foreign and local investors in the investment environment as a whole.
* There may be broader economic or political objectives that require maintaining the stability of a specific company.
Intervention comes after crises such as a pandemic or debt crises, or a negative credit rating, where sovereign funds intervene to buy significant stakes in major companies, not only to protect them but to send a reassuring message to the entire market.
* When there is a perceived threat to investor confidence in the economy or the market as a whole.
📍How does the ordinary investor benefit from the intervention of the 'benevolent market maker'?
* Psychological stability: these interventions reduce public panic and restore confidence to individual investors.
* Opportunities to buy at lows: government or institutional intervention often precedes a subsequent rise in the stock, giving investors a chance to buy at low prices.
* Improving performance in the medium term: the supported stock often regains part of its losses, which positively reflects on the portfolios of individual investors.
But it is important that investors do not rely solely on these interventions, but rather build their decisions on financial and technical analysis and follow official news.
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