Bosses not selling despite market rout

Stock market investors have dumped shares in an equities downturn over the past year but company managements seem to be sanguine about their firms' prospects, holding on to stock and even buying into the slump.
Corporate insiders in both the United States and Europe have been selling significantly fewer shares of their own companies over the past few months, while buying has been brisk despite the market turmoil.
Andrew Garthwaite, head of global equity strategy at Credit Suisse, said strong recent insider buying is a positive sign for battered stocks.
"The figures suggest that equities are poised for a near-term rebound after having marked a temporary low," he said.
According to Reuters data, the monthly buy/sell ratio of management dealing in shares of U.S. companies is at an average of 0.1 so far this year, compared with an average of 0.05 in 2007 and 0.04 in 2006.
While buying volumes have been rising slightly, selling volumes have been falling dramatically in 2008.
"You're seeing insiders really on the buy side at the moment," said Patrick Hable, managing partner at 2iQ, a Frankfurt-based research firm which specialises in monitoring directors' dealings in 17 European countries and covers around 5000 companies.
"They see their shares as undervalued, implying their outlook is not as despaired as the market might think."
Stocks on both sides of the Atlantic have been knocked lower this year by recession fears, concerns over rising inflation as well as worries over the fallout of the crisis in the credit market that has sent banking shares sinking.
Both the Dow Jones industrial average and the Standard & Poor's 500 Index are down 13 percent so far this year, while in Europe, the FTSEurofirst 300 index of top European shares is down 22 percent year to date.
But despite the retreat, executives have not been overcome by panic.
According to 2iQ data, the average monthly buy/sell ratio in Europe so far this year is 1.57, compared with an average ratio of 0.86 in 2007, and 0.90 in 2006, while monthly average sells volumes have fallen by more than 50 percent so far this year.
"It's definitely a signal that the worst is over. I wouldn't say that a stock rebound is just around the corner, because there are many factors such as oil prices and geopolitical events that could affect equities, but insiders are signalling that the bottom of the bear market has been reached," Hable said.
BUY SIGNAL?
For the UK, over the last week, directors' purchases of their own companies' shares by volume exceeded sales by a ratio of 13 to 1, compared to the long term average of 2.5 to 1, suggesting that insiders are increasingly confident that the market has bottomed, according to research from DigitalLook.com.
According to the financial information website, when the ratio of directors' buys to sells by volume breaks over 13 to 1 it is typically followed by a sustained rally in the stock market within the next three to six months.
For Bernd Meyer, European strategist at Deutsche Bank in London, selling volumes had already moved to a low level at the end of last year, and since then they have remained at a level "below what we have seen over the last four years."
"The net buying had been relatively low in May, while it was very high in March. Since May, it has gradually started to increase again, but it's still far away from what we've seen in March," he said.
Credit Suisse's Garthwaite said that the insider buy/sell ratio gave a "buy signal" around mid-July. But overall, just three out of eight key indicators they track were giving the positive signal at that time.
"It looks like we haven't really seen the capitulation level, therefore we could get a milder bear market rally than the average," said Garthwaite.
Deutsche Bank's Meyer remains cautious on what to read into the data.
"It tends to work very well in trend markets, so it might work now as we're in a downtrend market, but the insiders seem not to get it right when there's a turning point," he said.
"As the analysts don't see earnings downgrades coming and they continue to be too optimistic, the insiders don't see that the economy is deteriorating and they still think that everything is fine with their companies until it blows up."
The strategist said that last autumn, insider buying was really strong, but the market tumbled.
"History tells us that it didn't work last year in the fall, as it didn't work in 2003 and 2000. But in between, there is a nice correlation between our aggregated measure and subsequent equity market performance," he said.
"Now that insiders seem to have recognised that the growth situation has deteriorated and that we are in a declining market, the data might start to work again as a relevant signal." (Reuters)