Institutional investors brought clout — RBTT

Therefore, some correction of the market was expected, said the RBTT Investor in its April 2006 issue.

However, the prices of equities on the local market are now significantly below benchmarks for comparable companies, it was noted.

RBTT said one of the most significant factors contributing to this over-correction has been the decline in participation by institutional inventors in the market.

“The institutional investors, such as the major pension plans and savings plans, once made up as much as 80 percent of the demand don the local exchange. However, this demand has not been present since mid-2005.”

The legislation, it explained, governing the portfolio mix of pension plans, requires that no more than 50 percent of the market value of the pension plan’s assets be allocated to equity investments.

“The rapid increase in share price during 2002-2004, combined with the fact that fund managers were slow to rebalance their portfolios resulted in the majority of plans violating the regulatory guidelines and exceeding the 50 percent limits,” the newsletter said..

It noted that in order to re-align themselves with the statutory requirements, “these institutional investors were directed by the Inspector of Financial Institutions to bring their portfolios in line with the regulations and, as a result, they had to reduce their holdings of equities, which brought millions of shares onto the local market, driving share prices down.”

It continued, “Normally the price decline to date should have encouraged more demand. However, due to the fact that certain portfolios still need to be brought in line with the legislative directive, there are more offers than bids on the TTSE.”

RBTT said while its stock price has been on the decline over the past year, it is still in line with the overall market index.