The Covid-19 pandemic has caused markets to turn volatile. Yet, there’s a significant increase in trading interest by retail investors across Asean, says Ian Douglas-Pennant, Head of ASEAN Equity Research at UBS Investment Bank.
Presumably, some of these retail investors, with the normal work and travel pattern disrupted, have been turning to investing. As such, financial institutions need to better appreciate the “rising importance of the retail investor” in what might be the new normal.
The surge in retail investing isn’t limited to just one market. For example, the Stock Exchange of Thailand saw retail investors buying 120 billion baht ($3.2 billion) of equity more than they have sold, and this was the fastest rate of net buying UBS observed. Singapore, meanwhile, saw $6 billion of net buying just in the last six months.
Across the rest of Southeast Asia, there is anecdotal evidence there is a surge of interest in buying stocks, with searches on Google of the term “buy stocks” in Bahasa more than doubling.
The behavioural pattern of retail investors have changed as well. “Pre-Covid, retail investors invested in order to fund near term consumption. When you buy a stock you have in your head, what you want to buy with the money that you're investing, it might be a new kitchen appliance or a new car,” says Douglas-Pennant.
When the market goes up, these retail investors tend to sell and take profit. Yet, over the past six months, retail investors kept buying, he says.
Douglas-Pennant lists three factors that could be driving these investors, namely, as movement restriction orders take hold, people have more time to actively manage their investments. “As they are hesitant to go outside and continue their previous hobbies in crowded areas, they've got a lot more time. So they're able to invest,” he says.
Coupled with falling bank deposit rates, retail investors could be looking for other opportunities as to where they can save, and one of those places is the equity market, which maybe they've never done, he adds.
The final factor is what Douglas-Pennant calls “momentum”, and he says in times of crisis, investors usually bring their money home and invest it closer to home, as there is a perception that they understand “how life works better.”
With these new trends, Douglas-Pennant is optimistic that financial markets are in an “excellent position” for equity investors where growth is picking up and earnings are improving. At the same time, he noted a new body of savings being deployed in capital markets serving higher demand for equities and pushing prices higher.
He thinks that if this new body of investors is to stay then what investors might want to do is to look for countries which have a historic cultural bias towards retail investing. “Where the government has been generous with their support for citizens and where the economy is more rapidly returning to something close to a normal level”, he points out.
Contrary to a common belief that retail investors like to punt based on hear-says and rumours, Douglas-Pennant points out that retail investors are savvy enough to identify good quality companies and stay vested for the long term. Retail investors also typically see if they have a high tolerance for risk than professional investors - perhaps an increasingly important trait as there’s growing uncertainty over when recovery from Covid-19 can actually happen.
“So we're confident that they will recover. It's just a question of timing. So with that in mind, sectors like hotels, food and beverage sector, suburban malls, I think would be a good place to start,” says Douglas-Pennant.
