MMPI was taken to task by some readers in recent weeks for citing the “markets” without explanation. For example, the markets are now expecting share prices to rise in the final quarter of the year. But who or what are the markets?
The question is analogous with “Who or what is the Church?” Young Simon in primary school might have plausibly suggested that the answer was obvious – the church is the large building with the pointy bit on top. A more informed pupil will have come to realise that the Church is much more than the buildings.
Young Daphne might be similarly tempted to suggest that the markets are the buildings where financial transactions are traded – (futures; commodities and stock exchanges) – but she’d be equally wide of the mark. The markets are much more comprehensive. For example, the preponderance of trading continues to be executed “over the counter” in investment banks; commercial banks and insurance companies. The markets are also made up of those who set the rules (legislators); those who monitor activities (regulators); those who fix the price of money (central banks) and a whole host of other participants: pension funds (large investors); governments (large borrowers); speculators who tinker at the edges of capitalism; companies that trade across borders; consumers who are by far the most numerous (though not necessarily the most logical); fund managers including hedge funds; borrowers including crowd financiers and moneylenders. Aided by the digital age there are also financial intermediaries of which MMPI is one. The in-betweenies are the lubricants of the whole apparatus keeping the other participants competitive; transparent and honest. When MMPI talks about the markets it does so in the widest terms possible.
The EuroStoxx50 index finished above 3,388.22 on 29 August – great news for investors in the MMPI Escalator Plan Series 39! The product was launched just 12 months ago and the capital security was underwritten by BNP Paribas, one of Europe’s strongest banks. The only performance scenario where the capital was at risk was where the index fell to 2,032.93 (-40%). In fact, its lowest point throughout the year was 3,278.00 (-3%). There were two versions of Series 39 one paid out 4% and the other 6%. Handsome returns indeed for a relatively low-level of risk.
What has the last paragraph got to do with the markets? Well MMPI is a market participant and Series 39 was quoted in the markets (on the Luxembourg stock exchange actually). MMPI is not a large market participant. It is a niche player. Our strength lies in identifying what our customers need and satisfying those needs. It’s a relatively straightforward business model. If our customers’ demands are too great and/or we cannot provide solutions the model falls over. If, on the other hand, our customers’ requirements are reasonably challenging this prompts us to design creative solutions that seek to satisfy the scope of the challenge.
The markets provide many splendid opportunities; listening to our customers helps us seek out the best ones.