China reopening and improving political situation in Malaysia renew investors’ cautious optimism 

by AUFA MARDHIAH 

IN 2022, the retail segment continued to be a significant contributor to the local stock exchange, accounting for 25% of the average daily trading value (ADTV). But it was certainly a challenging year for investors, both professionals and retail investors alike. 

“I’m expecting retail investors to be more cautious in 2023 after a rough year in 2022,” Apex Securities Bhd economic and equity analyst Jayden Tan told The Malaysian Reserve (TMR). 

So far this year, another analyst is already seeing an uptick in activity by retail investors. “From our engagement with clients, they had been on a wait-and-see mode in the second half of 2022 (2H22). There is a renewed sense of optimism that the reopening of China and the improvement in the political situation locally will bring more opportunities in the market,” said Maybank Investment Bank Bhd (Maybank IBG) head of investment management Abdul Azzahir Azhar.

The FTSE Bursa Malaysia KLCI (FBM KLCI) experienced a rollercoaster ride in 2022 as a result of a variety of factors such as global recession fears, monetary policy jitters, China’s zero-Covid policy, the Russia-Ukraine war, and, not to mention, domestic politics. 

Trading in the equity market improved significantly after the outbreak of Covid-19 in Malaysia as the ADTV surged from RM2.05 billion in the fourth quarter of 2019 (4Q19) to between RM5 billion-RM5.8 billion from 3Q20 to 1Q21. Since then, equity ADTV has been on a downtrend with quarter-on-quarter (QoQ) declines in the following six quarters from 2Q21 to 3Q22. 

It halted in 4Q22. Equity ADTV increased by 19.8% QoQ to RM2.09 billion in 4Q22, close to the pre-Covid-19 level of RM2.05 billion in 4Q19. 

Equity ADTV in 2022 was also brought down by the negative sentiment caused by elevated inflation globally and a series of interest rate hikes by the US Federal Reserve Board, which sparked concerns of a potential recession, and Russia-Ukraine war, which disrupted the supply of certain essential goods. 

Can investors expect something different in 2023? TMR spoke to three equity analysts on what retail investors have in store in the new year. 

TMR: How will retail participation perform in 2023?

Tan: The slowing of the economy in tandem with inflationary pressures is increasing the cost of living and reducing savings for investment. Hence, I guess the retail participation will decrease slightly compared to 2022, but will still be higher than the pre-pandemic. 

I’m expecting the retail investors will be more cautious in 2023 after a rough year 2022. As growing experience with investing since 2020, the retail investors are more likely to focus on more long-term investing and sound fundamental companies to protect their assets and navigate amid the uncertainties in 2023. 

Kenanga Investment Bank Bhd (Kenanga Research): While there will always be the regular group of retail investors who will be there to invest/trade to make money, a larger segment of retail investors will only join in when there is a clear market run-up, which in turn will depend on whether the stock market fundamentals will strengthen going forward. 

Hence, it will depend on the stock market performance as retail investors generally follow (instead of lead) the stock market trend. This was the case during the Covid-hit years when retail participation on Bursa Malaysia surged to 38% (in 2020 and 2021) of total trading value, compared to a trading participation of 25% in 2019 and 27% in the first nine months of 2022 (9M22).

Abdul Azzahir: Thus far in 2023, we are already starting to see an uptick in activity by retail investors. From our engagement with clients, they had been on a wait-and-see mode in the 2H22. 

There is a renewed sense of optimism that the reopening of China and the improvement in the political situation locally will bring more opportunities in the market. 

However, in order for this to continue its momentum, the market will need to demonstrate that it is indeed on a long-term recovery path. Improvement in geopolitical tensions particularly among major economies such as the US and China is another contributing factor. 

Hopefully, retail investors will learn to invest/trade by adopting fundamental and/ or technical analysis tools from credible sources. 

TMR: What do retail investors expect in 2023?

Tan: Retail investors have suffered and been hit in the turbulent 2022 market. The era of easy market return came to an abrupt end in 2022 when the stock market was hammered and cryptocurrencies crashed. 

The turmoil caused by rising inflation and interest rates, and recession fears, has prompted retail investors scrambling to find where to invest. After a bumper year in 2021 and a bad year in 2022, the retail investors believe they are seeking to pursue reasonable returns amid uncertainties in 2023.

Kenanga Research: Naturally, retail investors would want a vibrant and orderly stock market environment in order to invest or trade and make money along the way.

Abdul Azzahir: There is a wide range of retail investors in the market, from sophisticated traders, to long-term investors, to complete beginners. That being said, for the most part I think retail investors come to the stock market in search of a reasonable return that is better than fixed deposit and a decent spread above inflation. So, it’s safe to say that retail investors, both new and experienced alike, are looking for a stronger local equity market. This will need to be underpinned by factors such as political stability, a clear plan to drive economic growth and improvement in geopolitical tensions globally. 

Apart from that, clients are telling us that they want easy, convenient access to the markets. For those who are less experienced, they also want a trusted partner to provide them with insights and ideas on both local and global markets. 

TMR: How can retail participation be increased further?

Tan: Regulatory and education are important to increase the participation rate of retail investors. In Malaysia, the exceptional years in 2020 and 2021 had attracted a lot of novice retail investors into the market. However, due to lack of education and knowledge, most of them have lost their assets in the market eventually, especially in the glove and technology counters. Hence, lack of knowledge, information and regulation of the market, especially in the Malaysian market, made retailers feel that this is an opaque and unfair market, and that they are less likely to get an investment profit return.

Kenanga Research: Timely and readily available access to key information to be conveyed in a layman’s language. In addition, regular education sessions on the latest developments in the investment world will help to guide retail investors. 

Abdul Azzahir: Increased competition among brokers has resulted in improved access to the market. In 2020 and 2021, we saw retail participation increase sharply as investors had more cash on hand to deploy, and there were also clear investment themes such as the glove sector. Since then, we’ve seen many of these investors stay on the sidelines as there have been uncertainties over the political situation and the economy locally, and the macro situation globally. 

I believe that investors are not lying dormant — they are simply waiting for the right opportunity to deploy their investments accordingly. If there is a clear investment idea, if there is increased optimism about the Malaysian economy, that certain sectors will perform, then I am sure that retail investors will respond. 

Additionally, ongoing engagement by capital market intermediaries and regulators would also encourage retail participation. Many investors who entered in 2020 and 2021 were first-time investors, and they would need guidance to navigate their investment journey. 

TMR: What are some of the concerns about investing in 2023?

Tan: Coming into 2023, with the higher-level interest rate environment compared to the previous year, the retailers have to be mindful that they are expected to pay a higher amount of their fund to pay off the liabilities. Hence, the strategy and to protect the investment portfolio are the keys; cautious on the margin/leverage trading; using excess fund after living expenses to invest; focusing on the value of the investment; not buying stocks with unreasonable lofty valuation in an irrational market.

Kenanga Research: Retail investors should monitor closely the macro headwinds in particular economic recession risk, currency trends, global interest rates trend and foreign fund flows. Against a volatile market backdrop, retail investors may want to be nimble when it comes to investing/trading in the stock market. 

Abdul Azzahir: Retail investors should be more disciplined in their investment approach so that they do not end up chasing stocks without having a good understanding of the fundamentals. It can be tempting to succumb to fear of missing out (FOMO), but investors need to be mindful that markets can take unexpected turns. It is equally important to invest time in learning about investing, as it is to invest in markets. 

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• This article first appeared in The Malaysian Reserve weekly print edition