The domestic equity market witnessed an “exceptional level” of trading by retail investors last year as retailers sought short-term gains in assets offering higher returns — specifically glove and technology-related counters, which rode the Covid-19 pandemic wave.
The RM14.3 billion of net buying by local retail investors in 2020 surpassed the RM10.3 billion by local institutional investors, the Securities Commission Malaysia (SC) revealed in its 2020 Annual Report.
In fact, the participation rate of retail investors in Bursa Malaysia last year, which was at 32.4% in terms of value traded, was significantly higher than in 2019 when participation was only 20.8%, and even surpassed its five-year average of 21.4%. Participation of local institutional investors was at 49.9% in 2020, lower than its five-year average of 54.5%.
The lockdowns across the country last year also resulted in a surge in unlicensed, self-professed investment advisers or gurus on social media platforms like YouTube as people spent more time on social media.
More recently, the growing interest in day trading also gave rise to a new trading phenomenon. Taking inspiration from their US counterpart GameStop Corp, a group of retail investors bandied together on the social media website Reddit to raise prices of glove stocks. However, the impact of BursaBets did not gain as much trajectory for the Malaysian market as it did for GameStop in the US, given the strong presence of institutional investors in the local market. Still, this so-called “retail trader rebellion” has not gone unnoticed by the SC.
“The SC has closely monitored the situation together with Bursa Securities. We conducted real-time monitoring of all trading activities, which ensured an efficient fair and orderly market. We did notice these activities on social media, but this never really caught on [here] as the market dynamics between Malaysia and the US are quite different,” SC executive chairman Datuk Syed Zaid Albar told a virtual media conference in conjunction with the release of its annual report last week.
“As far as the retail participation is concerned, we in fact welcome it in this development of the equity market, as the presence of a more diverse group of investors can create a healthy, effective and vibrant marketplace,” he added.
However, he reminded retail investors to exercise caution and make informed decisions when trading. “Investors must be cognisant of the risks and opportunities involved, when investing in the market. Be cautious of social media chat rooms that try to influence investors to buy or sell certain stocks based on speculation or rumours. Please do trade based on fundamentals, and not be swayed by rumours or what we call ‘FOMO’ (fear of missing out).”
On the SC’s part, Syed Zaid said the regulator has issued cautionary notes, ramped up its investor education activities and organised anti-scam awareness campaigns under its InvestSmart platform.
“This is to remind investors to be vigilant on schemes offered on social media and the messaging platform. Our investor alert list is also constantly updated so that the public can be aware of unauthorised, unlicensed platforms.”
The SC has also set up a special task force focusing on “clone firm” scams and unlicensed activities.
“Efforts are also directed to enhance internal capabilities in internet surveillance, and in identifying unlicensed or unregistered firms offering capital services or products,” said Syed Zaid.
The SC acknowledged the issue of the lack of participation by retail investors in the domestic bond market.
“Retail investors are able to access the bond market directly, as well as indirectly. Historically, retail access to the market has largely been through our fixed-income unit trust and thus the investment access is quite limited.
“However, following feedback from market participants, we have introduced several initiatives to encourage retail access into the bond market through enhancement of the issuance process for the primary market, and the seasoning bond framework to facilitate retail access to corporate bonds and sukuk originally issued to sophisticated investors, and since then we have seen an increase in direct retail participation in the market, but the numbers remain small,” he said.
Retail investors flock to stocks priced less than 50 sen
An assessment by the SC reveals that 83% of retail volume last August was attributed to stocks priced at less than 50 sen, while 75% of retail interest was in ACE Market and fledgling stocks. The FTSE Bursa Malaysia Fledgling Index comprises Main Market companies that meet stated eligibility requirements but are not in the top 98% by full market capitalisation and are not constituents of the FTSE Bursa Malaysia EMAS Index, and to which no liquidity screening is applied.
The assessment also shows 56% of retail trades in August 2020 were in stocks in the industrial products and services, and technology sectors.
Focusing on the characteristics of retail investors last August — when numerous all-time highs in total market-wide volume were recorded — the assessment was done on an identified sample population of 19,329 Central Depository System (CDS) accounts, of which 14,118 were retailers. The sampling was based on the most active CDS accounts that, in aggregate, contributed to two-thirds of the total volume traded in each of the most active stocks last August.
Investors aged between 40 and 60 make up half of retail trade volume
Further key observations of retail investor profiles from the assessment found that 75% of these retail accounts belonged to investors aged 40 years and above. In fact, half of the retail trade volume last August was contributed by investors aged between 40 and 60 years.
To further expand on these findings, out of the total trade volume in August last year, 28% was contributed by retail investors aged 40 to 49 years old, 25% by those aged between 50 and 59 years, 21% by those aged 60 years and above, 20% by 30- to 39-year-olds while those aged below 30 contributed 6%.
Key findings from the snapshot also show that the younger groups preferred to place trades electronically, with 94% of those aged below 30 having done so, followed closely by the 30- to 39-year-olds at 93%, the 40 to 49-year-olds at 88%, and 82% of those aged between 50 and 59 years, as well as those above 60.
As for cash upfront and collateralised accounts, 67% of the group aged below 30, and those between 30 and 39 held such facilities. Meanwhile, 52% of those aged between 40 and 49 years, 55% of those aged between 50 and 59 years and 50% of those aged 60 and above had cash upfront and collateralised accounts.
According to the SC, when combined with other supervisory and surveillance data, the outcome from this exercise forms a more complete picture of the profiles of domestic retail investors. Overall, the increased participation of retail investors observed was assessed to not pose a significant systemic concern as it was driven by seasoned investors, with trades mainly from cash reserves without depending on borrowings.
Nevertheless, the SC said that it will continue to closely monitor and address any potential build-up of risk on this front.
Source: https://www.theedgemarkets.com/article/exceptional-year-retail-investors