Is Bursa the new TINA, with gambling outlets closed?

Investor interest remained robust on Thursday and Friday, when total market volume topped seven billion and 9.3 billion shares respectively. For the week, daily volume traded averaged 8.1 billion shares worth RM4.2 billion.

That is almost double the average daily traded volume of 4.2 billion shares and 1.6 times the average daily traded value of RM2.6 billion in the first four months of 2020.

Remarkably, trade volume jumped to yet another record high the following Monday (May 18), topping 11.3 billion shares before paring back to 9.6 billion shares on Tuesday and 6.8 billion shares on Wednesday.

What caused this sudden and very sharp spike in investor interest?

Similar statistics from regional markets, Singapore, Indonesia and Thailand, offered few clues. There was no material increase in trading volume on the stock exchanges in Singapore, Thailand and Indonesia compared with their averages recorded in 2019 (note that Indonesia did see a jump in trading volume on May 20, lifted by the highest net foreign buying in a year) (see Chart 1). So, the phenomenon was limited only to Bursa.

Incredibly, trading volume for ACE Market-listed stocks surged to 5.1 billion shares — accounting for more than half (52.1%, to be precise) of the total market volume on May 13! Note that stocks on the ACE Market account for just 14% of the total number of listed companies (ACE and Main markets) and a mere 1.2% of total RM1.45 trillion market capitalisation.

We looked at stocks that saw their traded volumes (on May 13) surge between 15 Is Bursa the new TINA, with gambling outlets closed? All returns and stock prices are reflected in equivalent US dollar terms MSCI World Net Return Index is as at May 20, 2020 (GMT+8) or last close and 51 times their average volume of the previous 200 trading days. Of the 25 companies, 64% are listed on the ACE market, 64% have market caps of less than RM200 million and 40% are loss making. Positively, most have strong balance sheets with only 16% in net debt (gearing ranging from 6.9% to 90.5%).

Some 84% of these stocks recorded more than 10% price gains in only two trading days. Consequently, the FBM ACE index far outperformed the broader market (see Chart 2). (All the tables for the stocks analysed in this article will be available exclusively to subscribers of AbsolutelyStocks at www.absolutelystocks.com.)

Perhaps more importantly, as quickly as the volumes surged, they already fell off significantly by Friday (May 15). Indeed, investor interest had, by then, shifted to Main Board-listed stocks.

Trading volume for the Main market jumped to nearly seven billion shares on May 15 and further to 8.7 billion shares on May 18. This compared with the daily average of 2.7 billion shares from January to April 2020.

Next, we analysed companies that reported big jumps in trading volumes on May 18 — when total market volume hit 11.3 billion shares. The stocks on this list — that recorded volume jumps of 10 to 44 times their average 200-day volumes — are completely different from those on the previous list, save for one.

This time around, 76% of the stocks are listed on the Main market, though more than half consist of smaller companies with market capitalisations of less than RM200 million ($65.1 million). About 36% are in the red for the trailing 12-month period and a higher 44% are in net debt. Gearing ranged from 19.3% to 1,150%. Yet, 92% of these stocks chalked up more than 10% price gains over just five trading days.

A good number of the companies from the May 13 list are related to the healthcare and hygiene businesses — although many quite remotely so — thus playing to the Covid-19 pandemic theme. Indeed, we would be hard-pressed to believe that their underlying fundamentals have changed so much in a few days’ time as to warrant these gains and trading volumes.

Similarly, the clear winners from the outbreak crisis are glove makers. Understandably, their shares have performed very well this year. Even then, the price gains of 44% for Top Glove, 50% for Supermax Corp and 24% for Hartalega Holdings — the three largest glove makers in the world — in just five trading days (from May 8 to 18) are hard to justify based on fundamentals.

In the latest turn of events, investors have shifted their focus to oil and gas stocks, riding the rebound in crude oil prices. Nevertheless, at current prices of US$30+ per barrel, many projects remain unprofitable. Oil majors such as ExxonMobil, Chevron Corp, BP and Shell have announced steep cutbacks in capital expenditure and warned of the long road to recovery.

Clearly, there is significant rotational play ongoing on the Bursa, with steep but short-lived volume spikes and, often, big price gains. These price gains are likely not sustainable once the play on the stock is over.

When stock prices are far disconnected from underlying fundamentals, then what investors are doing becomes less investing and more gambling. And perhaps this is what is happening — gambling.

Has the stock market become the new playground for gamblers missing their daily fix — or, as some might call it, “TINA”? After all, most of the usual gambling avenues are closed — both legal and illegal — owing to restrictive movement measures.

(TINA is the abbreviation for “There is no alternative” — a phrase that originated with the Victorian philosopher Herbert Spencer and became a slogan of former British Prime Minister Margaret Thatcher in the 1980s. In recent times, it is often used to describe why stocks should be bought because bond yields are so dismal in an environment of excessive liquidity.)

The Genting group has temporarily shuttered all of its casinos under lockdown measures in Malaysia and Singapore. Numbers forecast operators such as Berjaya Sports Toto and Magnum have stopped all draws whereas cruise ships have stopped operating.

Almost all live sports events around the world have been halted, including football, basketball, baseball and hockey. In normal times, sports betting has a tremendous following of gamblers.

Malaysian authorities have noted rampant illegal online gambling activities during the Movement Control Order. Others have reported a sharp spike in e-sports betting, commodities trading and even weather derivatives, which are financial instruments used to hedge against variables such as temperature, rainfall, snowfall, frost and wind.

For some, trading volumes over the past two weeks hark back to the go-go years of the early 1990s, before the Asian financial crisis. And it may be tempting for retail investors to jump back into the fray. One could certainly make some fast money riding the current momentum.

If so, do keep your eyes wide open and be nimble, as momentum can reverse in a single heartbeat. Know that your winning odds may be no better than a game of chance, similar to when one is betting against the house. In particular, we would strongly caution novice investors against borrowing to buy stocks.

The Global Portfolio chalked up another week of strong gains, up 7%, as the reopening of the US economy buoyed investor confidence. All the stocks in our portfolio closed higher for the week. Shares in homebuilder Lennar and building materials companies BMC Stock and Builders FirstSource were the top gainers.

Total portfolio returns were lifted to 11.8% since inception. By comparison, the benchmark MSCI World Net Return Index is up 4.2% over the same period.

Disclaimer: This is a personal portfolio for information purposes only and does not constitute a recommendation or solicitation or expression of views to influence readers to buy/sell stocks, including the particular stocks mentioned herein. It does not take into account an individual investor’s particular financial situation, investment objectives, investment horizon, risk profile and/or risk preference. Our shareholders, directors and employees may have positions in or may be materially interested in any of the stocks. We may also have or have had dealings with or may provide or have provided content services to the companies mentioned in the reports