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PETALING JAYA: Retail investors are advised to tread the market with caution to mitigate inherent risks and avoid potential pitfalls.

The fact is, there are still a lot of global uncertainties and domestic macro economic challenges that could have a negative impact on the stock market.

According to Bursa Malaysia Securities Bhd, while the recent surge in retail participation has been a boon to the local stock market, there is still concern that these mom-and-pop investors are easily influenced by emotion and instinct that can leave them in a vulnerable position.

“While we continue to drive more retail participation in our marketplace, we are also pursuing a focus to raise the level of investment savviness among Malaysians, ” the stock market regulator told StarBiz in an email.

“We continue to encourage investors to gain proper understanding and stay informed about new developments before investing. Tools such as Bursa Marketplace and Bursa Academy can help investors understand the products, realise their risk profile, and help them make informed decisions, ” it explained.

Bursa Malaysia said financial literacy is essential, as it encompasses almost every aspect of everyday life and helps towards sustainable wealth creation. “A good understanding of investing is a valuable skill that every investor should have, and it is also the best form of investor protection, ” it said.

Urging investors to be wary of promotional content and hype by celebrities and unlicensed individuals, Bursa Malaysia said investors should instead analyse and assess the fundamentals of companies to make informed investing decisions.

“Investors need to be equipped with the right tools and foundations to make informed decisions on investments. This will ensure a sustainable market in the long term, ” it explained.

Data showed retail participation reached a 10-year high, accounting for 34.5% of value traded in the local equity market, as at end July 2020.

Average daily value (ADV) of retail investors as at end-July 2020 amounted to RM1.07bil, representing an increase of 167.5% from 2019, and 137% from the 10-year average.

Bursa Malaysia said retail investors continued to be net buyers at RM8.29bil.

“The healthy participation by retail investors has helped provide a buffer to support the local market amid the exit of foreign investors, ” Bursa Malaysia said.

It said getting retail investors into the equity market has always been a priority as it would add velocity of trades and generate wealth for Malaysians.

“Active participation by retail investors is essential towards a vibrant securities market.

“Retail investors have a positive impact on our markets by improving both its liquidity and depth, ” Bursa Malaysia said.

“To that end, our efforts over the years have been focused on growing retail participation.

“Similarly, investor education is also an important agenda not just for sustaining retail activity, but also improving the quality of activity through enhanced investor protection, ” it added.

So, what advice would brokers give retail investors?

CGS-CIMB Securities Sdn Bhd head of retail research Kong Seh Siang, for one, stressed that an individual would need to start off with having an investment plan that fits one’s risk tolerance and needs.

“Define your return expectations and the risk you are willing to take in order to try to gain the desired returns. Then, find the right investment strategy that suits your risk appetite, ” Kong explained.

“As a rule of thumb, never trade with money that you cannot afford to lose. Investors should keep their emotions in check and stick to the investment style they are familiar with, ” he added.

CGS-CIMB Securities business development unit’s Nigel Foo advised new retail investors to understand the fundamentals of the stocks they invest in and not to depend on rumours.

“They should also take heed of what is happening worldwide, as it can have an impact on the local bourse, ” Foo said.

Similarly, Malacca Securities Sdn Bhd executive director Lim Chia Wei advised investors to look for solid fundamental counters with net cash position in order to sail through the current trying times under the Covid-19 environment.

“We believe the worst is not yet over. The upcoming quarterly results may turn out to be weaker than expected, and prospects moving forward are likely to be slow, particularly under the new-normal business environment with standard operating procedures such as social distancing, less dine in and wearing of mask, being implemented, ” Lim said.

“Individual investors/traders should adjust their risk appetite on the heated market and always trade within their means. Always use stop limit function on brokers to protect their capital in case the market turned against them, ” he added.

Meanwhile, RHB Investment Bank Bhd head of retail securities and futures Eddy Tan said an astute investor would be mindful of weighing the risk-reward of each investment decision.

“Information is plentiful and readily available. Hence, investors ought to take advantage of the legitimate, available resources such as market insights from licensed research analysts, ” he said.

“We encourage retail investors to register for all available tools to make educated and informed decisions. Additionally, they need to be mindful to constantly trade within their means, ” he added.

Diversifying risk should underpin every strategy, Tan stressed, adding that retail investors could benefit from a strong support system.

“Portfolio diversification is important for all investors. Companies with strong fundamentals and good corporate governance are good investment choices, ” he said.

“This is where a licensed dealer’s representatives plays a key role. A diligent and responsible dealer’s representative, backed by a strong research team, is able to guide the retail investor by providing advice and support every step of the way, ” he added.

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