Retail boost

Balanced play: According to the Association of Stockbroking Companies Malaysia, there must be balanced participation from institutional and retail investors in any healthy equities market.

SOME people do not invest in the stock market because of a perceived risk of losing money. And it is from this position of fear that they would rather put their money in safer, or less risky, instruments, even though these assets often generate lower returns on average.

Such is the case for Eugenie Devan. The kindergarten teacher, in her early 30s, concedes she is a conservative when it comes to investing, and has never invested in the stock market.

“I’m more inclined to park my money in something that’s safer, compared to the stock market. But of course, I know, the drawback of this is my returns won’t be as great,” Eugenie says.

“I find investing in stock market to be ‘risky’ – you hear stories about people making it big on the stock market, but you also hear horror stories about people losing everything through it – so maybe, it is just not for everybody. To me, it is just too technical, and not easy to understand – so I guess I’m just not someone who’s willing to take big risks, especially with my hard-earned money,” she explains.

Eugenie’s story is a typical case of why some Malaysians do not invest in the stock market.

One of the major challenges faced by Malaysia’s stock market is the low retail participation, which has been hovering around 20% for some time now.

To be more specific, data from Bursa Malaysia for the month of July this year shows that local retailers made up 21.6% of the total value traded, although in volume terms, it was higher at close to 41%.

However, it is the value figure that is more relevant, as it indicates the wealth-creation that could be taking place. Also, the calculation of a market’s velocity uses the value traded and not the volume.

Comparatively, in Thailand, the daily trading data as of July 31 on the Stock Exchange of Thailand showed that local individuals made up 30% of the buying and selling value. The numbers are higher in Singapore and Hong Kong.

According to Association of Stockbroking Companies Malaysia (ACSM) chairman Datuk Ahmad Azman Abdul Manaf, in any healthy equities market, there must be a balanced participation from both institutional and retail investors.

“Retail investors will provide greater depth to the market because their investment criteria are different from the institutional investors. They have different trading or investment objectives and are willing to trade in smaller cap companies, Ace Market and speculative counters,” Azman tells StarBizWeek.

“This would increase the velocity of transactions and to facilitate a more dynamic equities market,” he says.

AmInvestment Bank Bhd CEO Seohan Soo concurs: “It is important to have velocity in the market. As retail investors generally tend to buy and sell within a shorter span of time, such trading activities will provide the much-needed excitement in dialling up equity market exposure and continue to draw the crowd into the market.

“Retail investors play an important role and can help prevent stock prices from over-shooting on the downside during a sell-down by institutional investors (that have the tendency to move in herds). Likewise, it could help prevent stock prices from over-shooting on the upside during frantic buying by institutional investors,” Soo explains.

Rakuten Trade Sdn Bhd managing director Kaoru Arai notes that while institutional investors are essential to public limited companies, attributing to a substantial base of capital, with greater impact on share prices, they generally focus more on large-cap stocks, and have a greater risk appetite.

Retail investors, on the other hand, tend to hold on to shares longer, with a growing interest in small and mid-cap stocks.

Hence, the participation of both institutional and retail investors play key roles in ensuring a market that is dynamic and robust.

Initiatives in place

Last month, Bursa Malaysia Bhd CEO Datuk Muhamad Umar Swift said the exchange aimed to increase retail investor participation share in the local exchange to 30% over the long run, with the participation of foreign and institutional investors expected to be around 70%.

Data show that in the first quarter of 2019, retail investor participation in Bursa Malaysia stood at about 25%, while that of foreign and institutional investors stood at 75%. This compared with retail investors’ share at 22% at end-2018.

Local authorities have in recent years been working at lifting retail participation in the Malaysian equities to boost market vibrancy.

For instance, in early 2018, a list of measures was announced to encourage local individuals to invest in the stock market. These included a volume-based incentive programme and a six-month waiver on the trading and clearing fees for new investors opening their first central depository system (CDS) account.

Besides this, shares in mid and small-cap companies were exempted from stamp duty for three years from March last year, while margin financing rules were liberalised.

And more recently, the exchange is now banking on digital platforms and social media marketing to increase its reach, especially to the younger segment of the population.

The launch of Bursa Anywhere app in June is a case in point. The app is the first mobile CDS electronic platform in South-East Asia and the second in Asia, after Taiwan.

Targeting retail investors in the Malaysian stock exchange, the app is designed to become a “one-stop” platform where investors can manage their multiple CDS accounts without much hassle.

Tech effect

According to Arai, going digital will definitely serve as a game changer to encourage greater participation of local individuals in the stock market.

“In this digital age, convenience is essential. A mobile app can be a quick and easy way for the younger, more tech savvy retail investors to manage their equity investment activities,” Arai tells StarBizWeek.

He notes the group’s own mobile app, Rakuten Trade, has itself generated encouraging results.

Since its inception in May 2017, Rakuten – Malaysia’s only fully digital equity broker, and a joint venture between independent investment bank Kenanga Investment Bank Bhd and Japan’s Rakuten Securities Inc – has to date registered more than 32,500 accounts and trading value exceeding RM5bil.

That’s an increase of 170% in accounts from about 12,000 a year ago, and almost 400% in trading value from RM1bil year on year.

Similarly, Soo says digital apps are very effective in boosting retail participation.

“It is the way to grow the retail business, especially among the millennials and those in the 18 to 35 age group, who prefer the smartphone as the main platform for their everyday business dealings,” Soo argues.

“On our part, we as a bank believe digital transformation is the way forward and we are looking at e-onboarding and e-KYC for new clients,” he adds.

AmInvestment in October last year launched a redesigned website and mobile app called AmEquities geared towards millennial retail investors.

According to Soo, public response towards the initiative has been very good, as evidenced by the 30% increase in the number of website logins in just six months after the launch. He notes based on the statistics of download rates (from both old and new apps) for the first six months since the launch, the download rate for the new AmEquities app has increased sharply by 200%.

Meanwhile, Azman says while digital/mobile apps are not a new phenomenon, adopting technology is essential to meeting the expectation of different market segments, notably the millennials, and moving ahead of the curve in the face of digital revolution that has intense and irreversible impact on the global securities market.

“Almost all stockbroking companies and investment banks operate online broking via digital platforms/apps. It is estimated that more than 30% of all daily retail transactions are executed online,” Azman says.

“Compared to some other jurisdictions such as Japan or South Korea, though, we can say there is a room for expansion (in Malaysia),” he adds.

Financial literacy

Citing data from Bursa Malaysia, Azman notes out of 2.5 million registered investors, only around 25,000 investors are active traders, that is, those who trade at least once a month in the past 12 months.

On what more can authorities do enhance the appeal of the local equity market and encourage higher participation of local retail investors, Azman says, in view of the advance state of supervisory developments, there should be more focus on development efforts to enhance the capital market and retail participation.

“While investor education has been an important agenda by the regulators, it is equally important to enhance the financial literacy of investors. In tandem with other jurisdictions, this should be taken seriously as part of the academic developments of the younger generation,” he argues. Azman notes stringent rules on on-boarding of clients, and excessive and restrictive implementation of anti-money laundering requirements have posed challenges for investors to undertake investment activities in the capital market.

“There is a perception on the ground that we are an over-regulated market. Many shy away from disclosure of personal asset and wealth. It has become a negative barrier of entry to the market,” he says.

“Retail investors choose to stay side-lined or explore new trading frontiers such as forex trading and cryptocurrencies,” he adds.

Meanwhile, Arai reckons the Securities Commission has been enabling greater retail investor participation by liberalising the financial markets, such as by awarding licences that allow investment banks/brokerages to provide digital trading platforms.

“We can also play a greater role to enhance the appeal of the local equity market through greater investment literacy. By generating greater awareness and understanding of how the market is an avenue to achieving greater financial security, more retail investors may be keen to participate,” Arai says.

He says both the public and private sector can play a role in educating investors as well as addressing their concerns such as that related to the perception of risk and the convenience of trading in stocks.

Restoring trust

Soo notes while retail participation has been on a declining trend since the 1990s, it is incorrect to say that the local equity market lacks appeal to individual investors.

This is because statistics from Bursa Malaysia show the retail segment contribute between 18% and 22% of total turnover value on a daily basis.

In addition, he says, retail investors also invest indirectly in the local equity market through the various unit trust funds.

“Unit trust as an asset class is growing at a very healthy rate and the unit holders of all these unit trust funds are all or mainly retail investors,” he says.

Soo reckons retail investors will return to the market in a major way when there is money to be made.

“Stock valuations are typically driven by two key factors, that is, earnings and multiple. Corporate Malaysia will have to deliver better earnings,” he points out.

“Quite often in the past, investors in general had lost money on their investments due to failure by companies to deliver on their earnings or worse, through poor investment decisions by the public listed companies, or due to fraudulent activities by the management. Hence, the absence of trust in some of the listed companies,” he adds.

On that note, Soo, says the private sector should up its effort in restoring confidence in the market through better management and accountability.

According to Soo, one concern that remisiers currently have is an aging client profile.

“The young age groups do not appear to be very interested in stock investing and investing for the future in general; some experts believe these younger generations may not even be keen to invest in a house as they do not need one under the ‘shared economy’ concept,” he says, adding that there is a need to help educate the younger generations in the 18 to 35 age group on the investment opportunities in the stock market.

More education helps, Beyond Insights Sdn Bhd director and chief trainer Kathlyn Toh concurs.

“Attending seminars, especially those that are ‘idiot’ friendly or that can be basic enough for the layman to understand,” she argues.

The government could maybe work with the private sector to make companies provide basic courses on investments (not just the stock market),” she adds.

According to Toh, for someone who wants to grow one’s wealth, the stock market should be seen as an avenue to invest one’s money.

“It takes patience and one should always do research on the company in which one wants to invest,” she says.

For successful investing, pick a company with a solid brand, and time your entry and exit to manage risk, Toh adds.
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