RAKUTEN Trade Sdn Bhd, Malaysia’s only fully digital equities broker, reported a surge in account openings during the movement control order (MCO) period in the midst of the Covid-19 crisis.
More than 11,000 new accounts were activated, which was also a 100% month-on-month increase, out of which more than 64% were during the first phase of the MCO period alone.
Because of this, Rakuten Trade has turned into the black ahead of its third anniversary of operations in Malaysia.
Leveraging on its ‘zero contact’ platform to increase retail participation on Bursa Malaysia, Rakuten Trade expects to reach 100,000 active accounts by the end of the year.
In a statement earlier this month, Rakuten Trade attributed the good performance to activating almost 85,000 trading accounts and handling more than RM12.5bil in total trading value on Bursa Malaysia.
As of April 30, Rakuten Trade’s retail market share was more than 5% while its clients’ assets under trust had exceeded RM1bil.
The local equities market has been active over the last two months.
This comes after it being a laggard and deemed the worst performing Asia-Pacific stock market, over the last two years.
While it has gained close to 19% from its March 19 low of 1,219.72, it is still down some 9% on a year-to-date basis.
However, what has made the local market interesting isn’t so much the direction of the benchmark index, but rather its trading volumes.
As the Covid-19 pandemic worsened throughout April, the market became more alive, albeit volatile.
Volumes were steadily increasing until it reached a record of 11.2 billion shares on May 18. While volumes have reduced in the subsequent days, it is still high at the seven to nine billion mark.
If the market is dominated by retail participants, as speculated by some quarters, then the current situation draws parallels to a brief period in 2017. This was when digital stocks were in play thanks to the launch of the Digital Free Trade Zone (DTFZ). That project which was expected to generate trade worth US$65bil (RM286bil) by 2025.
Another example was in 2006. That was a market run-up just before financial markets tanked in 2007 ahead of the Global Financial Crisis.
Back then, stocks were up 20% to 30% within days. The theme then was the Johor play.
Johor-themed property players or anything related to the southern state were actively traded.
Today, the conundrum is that the current active interest in the market is happening on the back of the Covid-19 pandemic.
The market movers have been glove manufacturers, led by the indisputable leaders of Top Glove Corp Bhd and Hartalega Holdings Bhd.Over the last two weeks though, different rotational plays have started emerging.
The oil and gas stocks, which were smashed down in early March thanks to the price war between Russia and Saudi Arabia, came to life following recovering oil prices. This was then followed by construction stocks, railway contractors and then plantation stocks.
After a few days’ rest, the rubber gloves and healthcare stocks came to life once more.
Is this sort of trading sustainable though?
Former investment banker Ian Yoong feels that trading volumes are sustainable for now.
Short selling ban is the key
“The retail, proprietary traders and high frequency traders are buying and selling the same stocks on a daily basis. The party will not end until the music stops, ” he says.
One possibility is that the music will stop when the short selling ban gets lifted on June 30.
The line of thinking is that once short selling is permitted, the fun may end, and markets may have more downside and trading volumes will drop.
Nonetheless when markets fell sharply in early March, volumes increased. The average daily volume traded today is three times compared to the beginning of the year.
For a recap, the temporary suspension on short selling, which began on March 23, was initially targeted to end on April 30. It was then extended to June 30, as Bursa Malaysia and the Securities Commission wanted to provide stability and confidence in the Malaysian capital market.
Prior to the short selling suspension, the shares of several companies tumbled more than 50% in March. It was due to a combination of weak earnings outlook made worse by heavy short-selling activity.
Bursa and the SC stepped in to ban short selling on March 23, and this eased the selling pressure. Since then, there has been some stability in the stock market, with the benchmark index rising by almost 20%.
EquitiesTracker Holdings Bhd head of research Peter Lim Tze Cheng does not think the current trading volumes are sustainable.
“We are somewhat in an irrational exuberance surrounding the medical mania, from a potential surge in glove makers’ profits to companies announcing their intention to jump into medical machines and the consumables supply chain.”
“The jury is still out if this level of glove demand is sustainable in the long term, and whether the various plans of companies to get involved in the medical chain will bear success, ” adds Lim.
Lim says “they had been highlighting the potential of gloves as an investment opportunity” earlier this year even before Covid-19 became a pandemic.
“For investors who want to jump into this sector now, they need to be aware of and accept the valuation they are paying for, ” he says.
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