From a low of 1,219.72 points in mid-March, KLCI has been erasing nearly all its losses this year. As at last week, closed at 1,488 points, representing a jump of 22% from its lowest point then. Retail investors seemed to be prime mover for this. The Edge’s CEO Morning Brief reported that stock broking houses have seen a surge in the number of new trading accounts, as applications poured in. Some even noted that clearing their backlog of outstanding applications could take up to a month. Rakuten Trade, the fully digital equities broker, pointed out that over 64% of these account opening were happening during the first phase of the Movement Control Order period.

Year to date, net retail investments on Bursa have increased to RM6.39 billion compared with RM2.57 billion for the whole of last year. More than 60% of record high daily trading value of RM9.3 billion on 29th May were mainly driven by retailers. Unlike the experiences that we saw in 1999 and 2008, this time around "day trading" has come along with strong support from "message boards" on Facebook to live blogs and video feeds on social media. Most market observers that I talked to, agreed that these retail investors flooding the market as speculation grows rampant with a palpable exuberance and belief of no downside risk. Brokers told me that retailers are chasing companies with extremely poor fundamentals with investing tips coming from individuals with almost zero experience.

The median age of retail investors during these MCO periods is around 31 years old. Covid-19 lockdowns and the plunge in markets in March persuaded millions of new investors to open accounts. Some of the action appears to be from people who would otherwise be gambling or betting on sports-both of which were shut down. Day trading has replaced sports betting as a form of entertainment and this phenomenon could partly explain the current disconnect between the economy and stock market.
 

I do follow chat on investing forums, grouping in WeChat, Telegrams, WhatsApp and Twitter, sharing internet memes and jokes about stocks, and even posting self-deprecating charts showing their gains/losses. These new players are not trading based on fundamentals, earnings, estimates, products or market values, but rather talking up stocks driven by pure momentum. I even saw a site that makes the "research" even easier by posting the top holdings of its users.
 

I got business contacts, long lost friends and long-distance relatives are teaching me about fundamental investing. To me, this is the nature of what happens in a late-stage bull market cycle. There was a genius interestingly saying, “markets had a 25% selloff in March, how can we be in a late stage bull market?”

If the perception gap between Wall Street and Main Street is narrowing in favour of Main Street, it will impair the fundamentals of the markets over the next several quarters, hence making it harder to justify current valuations. The future progression of the pandemic remains highly uncertain and unlike past recessions, services activity has dropped sharply than manufacturing that could result in a costly reconfiguration of global supply chains. I do not wish to see many of young & aggressive traders to be taken by surprise in months ahead. A market peak without setting a new high that violates the bull trend line will still be seen as a "bear market."

Chee Seng, Wong
CIO, Athena Advisors
wong-chee-seng@outlook.com