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Festive season fever: The biggest opportunities & pitfalls for traders

It’s fair to say that traders and investors have a love-hate relationship with the festive season. While sales volumes increase – sometimes exponentially, and as a result certain instruments see a surge in value and investor interest, the festive season can pose risks that traders may not be exposed to for the rest of the year. As with any major shopping event or seasonal trend, the festive season holds both advantages and disadvantages for traders.

Commenting on this is Roger Eskinazi, Managing Partner at Tickmill. He explains that just as with other fluctuations seen at pivotal junctures during the year, keeping a keen eye on the market and tapping into analytical insights will allow investors to grasp opportunities and steer clear of the snags.

“Although for many the holiday period is pervaded by a sense of relief and relaxation, now is not the time to drop the ball – it’s even more important to remain vigilant to avoid making impulsive decisions. As always, metrics such as market sentiment, historical performance, consumer behavior, and financial forecasts will help traders make informed decisions as the year draws to a close.”

Spotlight on retail

Arguably, the most significant trend influencing markets over the festive period is increased consumer spending – although, as Eskinazi reflects, some sectors will see definite peaks while others will experience troughs. General retailers tend to fare well over the festive period, with food and beverages projected to account for over 33% of consumer spending, according to Wonga’s sixth Summer Spending Survey.

This year, given the steady rise of e-commerce stores and the growing popularity of large-scale online retailers which offer attractive discounts on categories such as gifting, electronics, appliances and fashion, online shopping will likely account for large proportion of consumer spend. Herein lies an opportunity for investors who see the rise of e-commerce and m-commerce as a positive prospect for the future.

Opportunities in consumer finance

Traditionally, the festive season sees consumers spend the savings they have accumulated over the course of the year, as well as bonuses, incentives, and 13th cheques. 2023 has however, hit consumer pockets hard, leaving many with less discretionary spend to work with over the festive period.

This has increased South Africans’ reliance on credit facilities as well as new and emerging credit products and solutions such as buy-now-pay-later (BNPL), interest-free credit and flexible repayment terms. The BNPL market in particular, which saw a boom during the pandemic years, is predicted to grow at an increasing pace as more South Africans feel the mounting pressure of the cost-of-living crisis.

According to data from market research firm, KenResearch, the BNPL market alone, has a forecasted cumulative annual growth rate (CAGR) of 35% between 2022 and 2027. Likewise, the volume of BNPL transactions also shows good prospects for a continued upward trajectory. For investors in stocks and shares, this may present an opportunity to pay close attention to the value of stock options in this industry.

Keep a watchful eye on overvaluations

There are, however, a few pitfalls to watch out for, as Eskinazi suggests. “With the seasonal spikes we see in factors such as profitability and sales volumes, there is a substantial risk of overvaluation in certain sectors. Investors may be tempted to chase stock options that have already experienced significant price increases due to these season trends.

But, as experience tells us, some of the prices may be short-lived and overvalued stocks may experience corrections after the festive season hype has died down. “This is definitely not the time to become overinvested in a particular asset class and to prioritise diversification as a way of positioning a portfolio for maximum returns while factoring in the very real risks involved.”

Prepare for disruption

Furthermore, Eskinazi cautions investors against basing their decisions on historical performance alone. The investing axiom: ‘past performance is not always a true and accurate predictor of future results,’ could never be truer. This is particularly true of this year, which has seen heightening geopolitical tensions abroad have a severe impact on supply chains.

Heading into the end of the year and into 2024, the Israeli-Palestine conflict will undoubtedly have a ripple effect on supply chains across a range of industries, including technology, agriculture, logistics and commodities. These are the market influences that traders need to account for in making decisions during the festive season. Each year brings with it a new and unique set of challenges that need to be considered. Because, as Eskinazi concludes: “we need to bear in mind that markets do not perform in isolation. The impact of social climates, political landscapes, the state of economic growth and macroeconomic factors are all brought to bear on what happens in trading markets. Investors are therefore encouraged to pay close attention to the finer details but also to zoom out into the broader context and base their decisions on bigger picture thinking.”

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