Thematic trading takes centre stage

  • Investment
  • Saturday, 26 Sep 2020

Rakuten Trade Sdn Bhd acting CEO Kazumasa Mise

MOST major equity markets have seen an unprecedented surge in retail investor trading in recent months.

Malaysia has experienced a similar trend, as individuals with money to play with, thanks in part to the government’s economic stimulus measures, pile into stocks in search of higher returns amid a historical low interest rate environment.

Data from Bursa Malaysia show retail investor participation touched 40.3% in August, up from 35.29% in July. The retail share only ranged between 26% and 29% in the past before gradually rising above 30% from April.

Rakuten Trade Sdn Bhd notes that what stood out in terms of investment behaviour over this period was thematic trading.

Its acting CEO Kazumasa Mise points out while thematic trading has been around for while, the trend has become more apparent since the implementation of the movement control order (MCO), due largely to the high participation of beginner retail investors.

Rakuten Trade head of research Kenny Yee says he expects the Malaysian equity market to remain driven by retail investors, thanks to ample liquidity in the system.

Yee expects the FBM KLCI to close around the 1,600 level by the end of 2020 on expectations of better economic growth for 2021.

Covid-19-related sectors aside, Yee says other lagging sectors, namely construction and plantation, will likely be back in favour on new infrastructure projects roll-out and stronger commodity prices.

Mise and Yee share their thoughts on thematic trading and the equity market outlook for the second half of 2020 with StarBizWeek.

Below is the Q&A.

What is the key difference between “thematic trading” and “general trading”?

Yee: Thematic trading sees traders or investors focusing on a trend or concept that resonates with the investor on a more emotional and intuitive level and goes beyond the facts at hand.

Thematic trading also focuses on themes that are tied to current trends or significant happenings that impact the economy, corporations and society as a whole, be it from a domestic viewpoint or global one.

For example, as a result of the world’s reliance on gloves and masks, healthcare is seen as a viable theme among retail investors in the equities market.

Technology is another theme based on how quickly the world is digitalising.

Hence, these investors would focus on growth-oriented companies and invest in stocks where a bulk of other retail investors are already in.

With traditional trading, investors would not rely on emotion at all, and a bulk of these investors would invest in the tried-and-tested stocks, or familiar public-listed companies without taking into consideration the broader macro-economic trends.

Would this not be a riskier form of trading, especially for less seasoned millennial retail investors who have grown in numbers since the pandemic?

Yee: It’s not a simple answer. Retail investors of today are not the same as the retail investor of yesterday, particularly in their mindset.

Many of the millennial-type retail investors today are not only more familiar with technology, but they are also more investment savvy, as a result of being better educated and having easy and convenient access to a diverse range of information to base their investment decisions on.

Having said this, with investments of any kind, one must always weigh the risk and benefit.

Time and effort are required, and all sources of information must be verified.

One must be aware of risk tolerance as well, and of course, holding investments for the long term is generally advisable.

What are the thematic themes that Rakuten Trade has seen among its retail investors? Please elaborate on the key drivers of these particular themes.

Mise: Thematic trading (or sector trading) has been around for a quite some time.

But it has been particularly more apparent and on a bigger scale since the MCO due to the high participation rate from beginner retail investors.

Several distinctive themes can be seen, namely healthcare, technology, and oil and gas.

How long do investors stick with a particular theme? Mise: It really depends on the investor/trader themselves. Some may hold for a couple of week/months depending on their risk appetite.

Of late, we have seen increased trading activities around healthcare and tech stocks, given their price movements have been volatile for the past couple of months.

What percentage of investments or trades are currently focusing on thematic trading among investors with Rakuten Trade?

Mise: In August alone, we saw nine out 10 actively traded counters related to Covid-19 such as gloves, masks and personal protective equipment stocks – the majority of which belongs to the healthcare sector.

The top five counters consist of four gloves and one mask stocks which contributed to 33.5% of overall trading value in August.

You have shared several themes under thematic trading seen among traders.

What are the top stock picks for these themes and why?

Yee: Our top three picks are AppAsia Bhd, Supercommnet Technologies Bhd and LYC Healthcare Bhd.

AppAsia - for being the sole service provider for electronic bank confirmation platform ( in collaboration with Malaysian Institute of Accountants.

We expect to see significant contributions from 2021 onwards when it becomes the new normal for audit confirmation.

Supercommnet - for we expect medical cable to see solid earnings growth on the back of improved demand amid the Covid-19 pandemic.

LYC - for being a niche healthcare player providing post-partum services, childcare, senior care, in-vitro fertilisation and aesthetic.

It is a turnaround story; we expect it return to profitability by 2021.

What is the outlook for the local bourse in the second half of 2020? Do you see any other themes gaining popularity among retail investors?

Yee: We believe overall trading will be dominated by the retailers, buoyed by excessive liquidity in the system.

As for the FBM KLCI, we expect it to see some uptrend ahead of better growth for 2021.

Hence, we reckon the benchmark index will close around the 1,600 level for 2020.

Even though Covid-19-related sectors may still hog the limelight, lagging sectors, namely construction and plantation, may be back in favour as we expect more roll-out of projects.

Crude palm oil prices are looking rather solid of late.

Tell us about your retail customer participation?

Is their trading size and turnover volume continuing to pick up in the second half of 2020?

Mise: For existing millennial traders who were already trading with us, we see many exploring alternative investments to weather the current market conditions, and equity trading volume has grown.

Our clients have contributed to almost RM35bil in total trading value on Bursa Malaysia since we started in May 2017.

As of Aug 31, our retail market share was 6.6% and more than 90,000 trading accounts have been activated this year alone, bringing the total accounts to almost 140,000 since business day one.

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