The markets don’t sleep during the festive period

OVER the Christmas period, equity markets are often seen as offering slim pickings for spread bet and contract for difference traders. Granted, there’s the prospect of a Santa rally, but otherwise the FTSE-100 index tends to end up trading in tight ranges as volatility ebbs away. Underlying volumes are low, traders generally aren’t at their desks, and many are resigned to leaving investment decisions until the New Year. Earnings news is sidelined and the fundamentals are also thin on the ground, knocked further by the run of market holidays. But closer inspection shows that this assessment isn’t universally true. This time of year can often throw up a bright star, especially if you look East.

During the period between 20 and 31 December, Eurasian Natural Resources Corporation (ENRC) and Kazakhmys, the mining companies, have both seen their respective volatility rise to between two and three times that of the underlying index. Obviously we’re dealing with a relatively small sample set, and both companies have only been part of London’s top flight index for the last few years. But the pattern follows if you look elsewhere in the mining sector. Fresnillo, the world’s largest silver producer, has also shown itself to be another volatile player around Christmas during its short tenure on the FTSE-100. Vedanta also adds its own lines to the story.

Is there anything that can explain why these resource companies manage to stand out at this time of the year? Arguably, they’re always at the more volatile end of the spectrum, as their prices are clearly correlated with the raw materials they have rights over. Any abnormal behaviour in the price of the underlying commodity clearly has the potential to skew the company’s perceived valuation. And with the proliferation of automated trading systems – they certainly don’t need time off over Christmas – it’s easy to see how choppy movements in something like the price of copper might translate into the valuation of a firm with huge quantities of that material under the ground.

So what about the other end of the range? It’s perhaps no surprise that the defensive plays win out. Severn Trent, Pennon, GSK and Unilever have historically – or for the last decade at least – tended to see less volatility than the benchmark index during the final third of December. Unless there’s any extraordinary factors at play, if you’re hoping to make a quick profit in the dog days of December from a share that’s going to be jumping round like a three year old on Christmas morning, you probably want to give these stalwarts a wide berth.

Beyond these two opposing ends of the volatility spectrum, recent history suggests there’s little to differentiate the rest of the market at this time of year. There is one thing for sure, however. There’s no need for investors to resign themselves to a week of eating chocolates and watching Christmas films on TV. Even though common lore may suggest otherwise, the markets never really sleep.


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