Fear factor hurdle to buying frenzy
Concept play, low interest rates and excess liquidity drive up Bursa
ON Wednesday a remisier got a call from a client who has not bought or sold shares over the last 10 years. The client, who is a metal trader, bought stocks in XOX Bhd, a company that registered losses in five out of the last eight years.
When the remisier enquired on the reason for buying the stock, the metal trader said he got a tip from a “reliable friend”. True enough, on Friday XOX was trading at high volume. But it finally closed the day almost unchanged – only half sen higher at 5 sen.
The metal trader hardly made any money from the trade. But his entry into the market was just the confirmation for the remisier, who has been in the market since 1991, that the buying frenzy on Bursa Malaysia has gone on to levels not seen for a long time now.
A combination of factors has pushed trading volume on Bursa to a new high on Wednesday.
The buying was mainly on healthcare-related stocks, particularly diving down to rubber glove manufacturers who are seeing a surge in demand. The trickle-down effect went on to service providers of the glove industry such as companies that supply chemicals and moulds.
From the glove industry, it spilled over to companies supplying personal ingredients that manufacture and distribute healthcare products such as sanitisers, hand-wash solutions and even chemicals to clean facilities.
The central theme was all about Covid-19 and the beneficiaries.
Investors made money from buying almost any stock that was seen in some way benefiting from the Covid-19 pandemic. Fundamentals did not matter any more, at least in the first three days of the week.
Trading was reminiscent of the 1993 bull run and 1996 second board run. Almost everybody who had a broking account traded. Those who did not have an account opened a new account. Towards this end, Rakuten Trade, a leading online brokerage owned by Kenanga Investment Bank and Japan’s Rakuten Securities, turned profitable for the first time after three years, underlining the huge retail participation.
The buying is due to several reasons. Firstly, Malaysia is the centre of glove production in the world. If anybody wanted an exposure to the glove industry, they have to put their money on stocks listed on the exchange.
Secondly, interest rates are at an all-time low. Returns from the fixed deposit in the banks are so low that even stocks with a dividend yield of 5% would offer a good alternative. The sell-down in March left Bursa with many stocks that offer decent dividend payouts of more than 5%.
Patience and research
Thirdly, many investors or parttime investors are still locked down in the homes. They have the time and patience to do some research on stocks.
It has become a normal routine for a person to have their breakfast at home and then catch up with the latest developments on business looking for clues on what to buy or sell.
The fact that the underlying economy is not performing well has taken a backseat. High unemployment rate, companies closing down due to the global lockdown and disruptions in the global supply chain are factors that seem to be less of a concern for now.
The over-riding belief is that the world will find a vaccine for the Covid-19 pandemic and life would come back to normalcy sooner than later.
The US is leading the charge in getting a vaccine for Covid-19. Through the Biomedical Advanced Research and Development Authority (Barda) it is providing financial assistance to companies to speed up their trials for a remedy.
If left to the private sector entirely, it would take five years to develop a vaccine. Pharmaceutical companies spend millions to develop the vaccine and certainly would want to patent to recover their investments and make some profit.
With Barda on board working with US and non-us based companies, expectations are running high that a vaccine can be found within 18 months.
Uk-based Glaxosmithkline, which is the world’s largest vaccine producer and Sanofi of France, the fourth largest, have teamed up to find a remedy for Covid-19. The joint venture has received financial aid from Barda. The Gsk-sanofi joint venture joins the likes of Johnson & Johnson that has also received financial aid from Barda to find a vaccine.
More than 70 universities and private companies from the US to the University of Queensland in Australia have joined the race to find a vaccine.
Never in modern history has there been such an elaborate collaboration between governments and private sector for a common cause.
This has led to optimism that a vaccine would be found soon. The economy would grow again, businesses will re-open, unemployment will drop and global demand would pick up.
The only stumbling block to the buying frenzy to continue is the fear of a second round of the virus spreading. The fear of people not going about to spend and live a normal life even though the rules are relaxed.
And most of all, concerns on governments clamping down on movements like what happened in the last two months to avoid a flare-up. It has already happened in South Korea and some parts of Germany where lockdown rules were reinstated.
Nobody really knows if a vaccine can be found sooner than the 18 months target. Until then, it’s better to be cautious.
The views expressed are the writer’s own.