Covid-19 makes share trading viral

To all the new arrivals, know that the sharks in the market already smell the blood in the water


TRADING of securities on Bursa Malaysia hit a record high of 9.6 billion units on Wednesday as the Covid-19 pandemic inspired healthcare thematic stocks to soar in prices and volumes.

The benchmark FTSE Bursa Malaysia KLCI rose 17 points or 1.25% to 1,397 points despite economic growth for the first quarter (1Q) slowing to 0.7% and Bank Negara Malaysia warning the economic data would be worse for the 2Q.

The virus and stay-at-home order have given the local exchange and brokers an unexpected boost with many bored of home life opening new trading accounts — often online accounts — with the hope of using the local stock market to earn some extra money as the real economy had pretty much stalled under the Movement Control Order (MCO).

The fresh money is acting like an incoming tide raising all boats and volume tends to beget volume.

A remisier friend said clients have been transferring fresh funds into their accounts as many fear the real economy will remain soft in the foreseeable future.

With interest rates now lower by 50 basis points, more enterprises are tempted to borrow from banks to invest in the market for better returns.

What is clear is that a lot of the trading seems to be speculative in nature as the volatility in prices and the 6.98 billion units traded yesterday would suggest.

Small glovemakers that would struggle to trade a million units daily in pre-Covid-19 times are now being churned into an incredible 50-100 million shares traded daily in the past month as newsflow fanned the fire lit by the pandemic.

While the higher share prices of major rubber glovemakers like Top Glove Corp Bhd or Hartalega Holdings Bhd may be fundamentally backed by prospects of improved earnings as a result of higher demand from across the world, what is the reason for shares of a company like Adventa Bhd, a renal dialysis services provider, to rally?

To all the new arrivals, know that the sharks in the market already smell the blood in the water, and the greed and irrational buying is only going to encourage them into a feeding frenzy.

Be warned, the thematic will change as well. As the new government in Putrajaya moves to ease the MCO in a measured manner and revive mega projects to kick start the economy, new investment thematics will come into play with money most likely leaving the current thematics.

Keep an eye on the exchange filings by companies as well. If insiders are selling at current prices, it’s probably a good signal that the stock is richly valued.

The volatility in the markets will likely remain and the Covid-19 infection numbers, both domestic and abroad, will be a key factor in determining the wider market sentiment as well.

Bhupinder Singh is the corporate desk editor of The Malaysian Reserve.