Sustaining retail momentum key to market rally

AS Bursa Malaysia continues to rise on the back of the global market rally, one of the surprises for the local bourse is the level of participation among retailers, which are primarily local retailers. Never have we observed the level of euphoria among retailers as their daily participation rate reached close to the 90% mark that of local institutional investors and more than double that of the foreign institutions’ trading values.

There have been several theories as to why we are observing this exuberance among retailers despite the shorter settlement period of “T+2”, which was implemented just over a year ago. Of course, the argument here is that most retail trades are not longterm holders and the bulk of the daily trading are either day trades or at best settled within the two trading days as required by the trading rules.

Based on data from Bursa, intra-day trades among retail investors, which used to account for about 30% of trading value in January this year, rose by eight percentage points to 38% last month, signifying the greater intra-day trading among retailers.

Since the announcement by the World Health Organisation (WHO) that the Covid-19 is a global pandemic on March 11 and the subsequent market fallout, retail participation in the market has been rising, perhaps taking advantage of the market volatility as well as relative value in some stocks after the early rout that took the FBM KLCI as low as 1,207 points on March 19. The market’s low on that day also coincided with Malaysia’s move to impose the movement control order (MCO), which came into effect the day before, although the announcement of the order was actually made on March 16.

With MCO, working Malaysians were home-bound and begin to experience workfrom-home (WFH) while others had so much more spare time and hence the stock market became a hideout place as market volatility attracted interest among investors. Statistics also showed that account opening and online trading leap-frogged as investors found a new money-making avenue with negligible cost of making a round-trip transaction with brokerage rate as low as 10bps.

The MCO also resulted in the closure of legal gaming outlets which meant that those who are accustomed to buying 4D or even a trip uphill to Genting, needed a mechanism to fulfil their gambling habits and thus the stock market became a de-facto gambling den for them.

There are a couple other reasons why we see retail interest in the market returning in a big way. One is the lower fixed deposit rates have made it unattractive for the moms and pops to continue to place deposits in banks and perhaps find that a 2% return could easily be achieved in a matter of days instead of one full year. The second is the moratorium given by banks for individuals with mortgage or auto financing. This chunk of monthly expenditure is no longer required for a period of six months, which started in April and up to end of September this year. Hence, for some retail investors, they are enjoying “extra” monthly disposable income and hence what better way to make some money than to invest in the stock market.

This week’s chart shows the daily retail trading value in terms of total buying and net buying/selling since the start of the year. As can be seen, the level of participation among retailers (in value) have leapfrogged by about five times since the start of the year. The chart also shows that while buying interest has increased, so has selling momentum, which has resulted in net buying interest, i.e. total buying less total selling interest, remaining relatively in-line with buying momentum.

In fact, in the month of May, four out of the 16 trading days saw retailers turning net sellers in the market, and up to Thursday this week, retailers were net sellers in just two out of eight trading days. Year-to-date and up to Thursday, retailers have remained net buyers to the tune of Rm5.45bil. Local institutions too have been net buyers with total net purchases of Rm9.52bil and that suggests that foreigners have been net sellers and that figure is now at Rm14.97bil.

With the strong rebound of the market since hitting the low about three months ago, question is could this buying momentum be carried through?

Perhaps the answer lies in the reason why are the retailers in the market in the first place? Liquidity, volatility, lack of investment choices, cheap round-trip trading options are clear reasons that will stay for a long time but other factors may not be too obvious. As we are now into the recovery MCO (RMCO) up to Aug 31 and life is returning to normal, most people do not have the “leisurely” time they enjoyed during MCO as they are back to work.

By the end of September, the moratorium given by the banks to individuals will end and hence limiting investors who had relied upon that extra cash to invest in the market. It is widely believed that even before the RMCO ends, gaming outlets will be able to re-open as appropriate safety and security procedures are taken into consideration. Hence, the retail interest that we have seen in the market will also likely disappear as investors go back to their traditional gaming avenues.

So what can Bursa do to sustain retail interest?

Investors the world over love market products that give them opportunity to trade

and with the obvious objective to make money out of it. We have seen in Malaysia’s case that one of the fastest growing segments is the rapid increase in number of call/put warrants issued by brokers. In terms of volume, these instruments today account for 6%-7% of market volume.

Call/put warrants gives investors options to participate in higher valued underlying securities or indices and indeed they do generate retail interest. This is where the brokers could perhaps provide more of such instruments, especially on underlying indices that Bursa has developed over the years.

For example, the fastest rising Bursa index series this year has been the Bursa Malaysia Healthcare Index but we don’t see underlying options on this index. Brokers can also explore many option products from index series and this include other popular sectors like the financial services, REITS, property, plantation, retail, construction, energy and technology.

Widening the scope of product offering also involves greater awareness of such products among investors. Market velocity in the exchange traded fund (ETF) segment has remained elusive for the local bourse as investors tend to shy away from such products in Malaysia. However, ETFS are very successful products that have significant participation among all levels of investors globally. Perhaps Bursa needs to make in depth study as to why our market lacks such high frequency participation in the ETF segment while market makers themselves need to ensure that they carry out their role effectively in not only providing market awareness and education via road-shows but also liquidity and price discovery in the market.

Two other products that the regulators and in particular the Securities Commission (SC) could consider is to provide greater depth of the market via dual-listing of some of the regional champions. This can give investors greater diversification benefit and enable them to participate in some of these high-growth stocks. Talking about the highgrowth segment, it is also a welcome move should regulators widen their listing procedures to allow our own high-growth startups to be listed on the market.

Malaysians are all very comfortable with services that is provided by our own start-up companies and even if they are loss-making, the SC should take steps to encourage listing of such companies as we have seen how companies in the United States get listed. From Uber to Lyft’s listing last year and this year’s biggest winners like Nikola (an electric truck company) and Vroom (an online used-car seller) are examples of companies that are coming to market and it does not matter even if they are loss-making as investors are betting on the future growth of a company.

After all, like any investment, the doctrine of caveat emptor applies.

For example, we know some of these home-grown names and they include companies like dahmakan, imoney, Kaodim, iflix, Cloudhax, Bookdoc, Carsome and Policystreet. We should also encourage regional well-known start-ups to be listed on Bursa and this include companies like Grab, or e-commerce platforms like Lazada or Shopee. These are the real new normal companies that we need them to be listed on the exchange to increase the level of breadth and depth of the market.

In conclusion, while we are seeing market interest returning among retail investors, it is important to sustain them with the right approach in terms of product offerings, market knowledge and with depth of investible companies. This is where all stakeholders need to come together to make the market a vibrant platform for investors.

The views expressed are the writer’s own.