Falling stock markets, but our investment society B&R Beurs is doing fine

The plunging stock markets are the focus of attention at B&R Beurs, the investment society at Erasmus University. “It’s a good thing we’re experiencing it now!”, laughs Alain Faddegon (22), board member. “Stock markets don’t often fall so fast, but if you want to become an investor, you need to know what to do. Luckily that’s what we’re practising now.”

In the app groups of the various fraternities in the association, there was a lot of activity this morning, Alain confirms. At the start of the academic year, each fraternity buys a package of shares, for between 200 and 400 euros per person. During a nine-month competition, the students see which fraternity is best at trading shares. Over the past few weeks, the stock markets had been falling due to coronavirus, but this morning things accelerated fast. “We’ve gone down a lot of points! Which is obviously all related to ‘OPEC’.”

OPEC? Yes. OPEC (the Oganisation of the Petroleum Exporting Countries). Mary Pieterse-Bloem, endowed professor at Erasmus School of Economics (ESE) and global head fixed-income at ABN-Amro, explains: “On Friday it was announced that Russia rejected agreements within OPEC to cut production and thus keep prices stable, which was what Saudi Arabia was pushing for.”

'We’re throwing all our oil on the market’

“Saudi Arabia produces so much oil that they can usually singlehandedly keep oil prices stable by adjusting the production. Now they want other countries to help so that they aren’t the only ones doing this. Falling oil prices caused by coronavirus is the reason for the situation. But Russia – which has a weak market position – doesn’t want to cooperate. So Saudi Arabia is saying: ‘We’re going to throw all our oil on the market if you don’t help’, which will cause oil prices to fall even faster. That will create considerable unrest on the market,” says Pieterse-Bloem. “People just want to get rid of shares at the moment.”

But student and B&R board member Alain is not one of them. He and some of his fellow members – ‘not every fraternity was on top of the situation’ – had already predicted that the stock markets would (partially) crash. “We conducted extensive research into coronavirus. We compared it with other viruses and studied their influence on the market. In our view, this analysis showed that coronavirus would cause significant problems, so we sold our shares in mid-February. Then OPEC came along – even though we obviously couldn’t have predicted that.”

Coronavirus is annoying for the B&R board because they are having to cancel events, but it’s an interesting time. “It’s amazing to experience this. In the time that I’ve been a member of the association, shares have continued to rise. But now we can also learn – many of us want to work in the financial sector – from a bad market. Very different emotions and market forces suddenly play a role,” says Alain.

'I’m sure things will bounce back'

And so they learn lessons for the longer term. “The nice thing is: next week we have a lecture by APG, the pension provider of ABP, about how to invest in ‘fixed income’, or government and corporate bonds. APG is mainly going to talk about government bonds. They are now rising in value, because investing in government bonds is safer. So it’s perfect timing to talk to them in these uncertain times on the market.”

Faddegon – student of International Business Administration (IBA) – also wants to work in finance. What does he like about it? “The competitive element. You can become completely absorbed in finding out how the stocks will develop, exploring the influence of certain developments on the market, and ultimately everything changes very fast and you need to ensure that you respond in the best way possible.”

So are we heading for a crisis similar to that in 2008? Pieterse-Bloem doesn’t see things so pessimistically. “I think it’s a temporary phenomenon; I’m sure things will bounce back. Although with coronavirus and OPEC, it feels a bit like being in a thunderstorm that doesn’t pass over.”