Retail investors fuelling mini bull market

Loan moratorium and lower EPF deduction provide additional cash to retail investors, turning them into punters aiming to make a quick buck at the stock market

by SHAZNI ONG/ graphic by MZUKRI

RETAIL investors have been fuelling the rise of the local stock markets despite the scourge of the Covid-19 pandemic, which has dragged world economies into a great depression.

Trading volume and value at Bursa Malaysia are hitting new highs in the last few weeks, although the economic outlook has been all but gloomy and the first-quarter corporate results have been largely disappointing.

Share exchanges hit a record high of 11.21 billion units on May 18 and on the last trading day of May, some 9.04 billion shares were traded — valued at a whopping RM9.31 billion.

Shares securities companies are also enjoying brisk new registrations as the stay-home order since March 18 opened up a new market segment among retail investors.

The moratorium on loan payments and reduced provident fund deduction put additional cash into the purse of retail investors, turning them into punters aiming to make a quick buck at the stock market.

Rakuten Trade Sdn Bhd head of research Kenny Yee said retail investors have played a large part in pushing the trading volume at the local bourse.

“Since February this year, we detected a surge in retail participation and (this) became more obvious in March following the market sell-down during that month. Overall, retail participation has risen by 62% compared to 2019’s average.

“As a result, the local bourse experienced a surge in daily trading volume, averaging 4.42 billion shares (February-May) from 2.51 billion shares in 2019,” he said at a recent virtual media briefing.

Yee said the low-interest environment and the steep market selldown in March have triggered the influx of retail investors to indulge in equities.

“The low valuation now has played a large part in the market participation.

“A lot of them are looking to take advantage of the cheaper price and valuations, hence you’ve been seeing a lot more retail participation,” he said, adding that he expects the active retail participation to continue.

“Most importantly, it is the low interest-rate regime. Most of them think they can make a lot more from the equities market. That’s why we’re seeing historical high volumes and retail participation,” he said.

“During the bull run in the mid-1990s, retail and institutional participation was 50-50. At one time, retail participation was even higher than institutional.

“At the moment, we’re seeing maybe 65-35. We can expect retail to improve further going forward.”

Rakuten Trade remains rather cautious as the market is still very entrenched in trading mode and the continued outflow of foreign investors. Foreign shareholding has dipped to a multi-year low of below 13%, from more than 20% three years ago.

An investment analyst said central banks around the world are pumping liquidity into the economy via various stimulus packages and lowering of interest rates.

“So, the market is now flushed with liquidity and instead of going into the real economy, it looks like a lot of it has flowed into the capital markets.

“With the slowdown in the real economy, the retail investors who have more time on their hands now are also drawn into the capital markets and by nature, they become fascinated with any good or bad news, for example, the coronavirus, development of related vaccines, the oil and other commodity markets, and accordingly enter and exit the markets in line with such news,” the analyst told The Malaysian Reserve.

The analyst, however, said for any market momentum to be sustainable, the future projections should not be “too far from the real on-the-ground fundamentals”.

“We should give it some time before we start jumping to conclusions whether there is going to be any market recovery that is V-shaped, U-shaped, W-shaped, or whether it will be L-shaped.”

The analyst also did not dismiss some heightened speculative activities by retail investors and some syndicated plays.

“Retail investors should exercise caution and not be too hasty on getting into ‘hot’ stocks and be wary of any stocks that demonstrate any signs of ‘pump and dump’ activities.”

Bursa Malaysia Bhd, the operator of the local bourse, is reaping the benefit of increased participation. The trading platform posted a profit after tax and minority interest of RM64.7 million for the first three month of 2020, a 38.2% increase from RM46.9 million recorded a year ago.

The securities market recorded a rise of trading revenue to RM78.1 million from RM59 million compared to a year ago, a 32.2% jump due to a higher average daily trading value during the quarter.