This article first appeared in The Edge Malaysia Weekly on June 29, 2020 - July 5, 2020

IN contrast to the weak sentiment on the ground, the stock market is flying, with the trading volume on Bursa Malaysia rising to fresh highs last month. The active stock market has been driven largely by retail investors.

Datuk Muhamad Umar Swift, CEO of Bursa Malaysia, says the higher retail participation is a regional phenomenon. “This has also been observed in other markets such as the Indonesia Stock Exchange and Singapore Exchange,” he points out.

Earlier this month on June 2, Indonesian stocks hit their highest close since mid-March. In June, retail investors accounted for 52% of trading volume. Across the Causeway, it was reported that retail investors poured a whopping S$2 billion into equities in March.

At home, Bursa says the number of new CDS accounts opened increased by 30% as at May 31, compared with the same period last year. Meanwhile, retail accounts’ average daily traded value increased 94.4% to RM778 million as at May 31, 2020, from RM400 million as at Dec 31, 2019.

Retail investors also posted a net buy position of RM5.06 billion at end-May 2020, a 106% increase from end-December 2019.

Umar believes retail investors are bargain hunting and taking advantage of the recent sell-off to buy shares.

The broader macroeconomic and geopolitical factors have resulted in a risk-off sentiment around the world, with global investors moving out of risky assets such as emerging market equities, he says.

Compounded by the onset of the Covid-19 pandemic, this has spurred higher foreign outflows from Malaysia equities, he adds.

Foreign funds continued to reduce their exposure to stocks on the local bourse for the 18th consecutive week, according to MIDF Research’s June 22 report. “Based on data from Bursa, international investors sold RM600.7 million net of local equities last week, a slight increase from the week before,” the research house notes.

Foreign investors have been net sellers, selling RM15.7 billion on Bursa so far this year, it adds.

Compared with six other Asian markets that the local research house tracks, MIDF Research states that Malaysia still has the fourth-smallest foreign net outflow on a year-to-date (YTD) basis.

“This phenomenon [of higher retail participation] is not unique to Malaysia, but experienced by all emerging markets in Asean. Nevertheless, together with our stakeholders (including brokers), we will continue with our efforts to highlight to global investors the unique value propositions offered by our market,” Umar says.

He points to the benchmark index, which is down by about 4% YTD versus the double-digit declines seen in other peer exchanges. It has remained relatively resilient, he adds.

“Our internationally renowned glove manufacturers continue to attract the attention of investors, building upon the strong momentum before the pandemic as a potential beneficiary of the trade diversion,” he says. “This has culminated in our Healthcare index reporting stellar gains of 82% YTD.”

The FBM KLCI has made up nearly all its losses for the year.

Due to the pandemic, the FBM KLCI fell nearly 400 points to a low of 1,219.72 points in mid-March — its lowest level since the global financial crisis in October 2009.

The index closed at 1,489.20 points last Thursday, an increase of 22% from the lowest point in March.

What are retail investors buying?

Umar notes that although the healthcare sector was seen to be favoured by investors, it ranks fifth among the top-traded sectors by retail investors.

The other top traded sectors were technology, consumer products and services, and energy, which, he says, indicates that “retail investors were adopting a forward-looking strategy”.

Amid the enthusiasm seen on the local bourse, he reminds retail investors to “trade in an informed manner”.

“Undertaking proper research and assessment is crucial so that they invest in something which matches their risk appetite and investment goals. Therefore, the investors should take advantage of the vast resources that are readily available in the marketplace to help them increase their knowledge in the fundamental and technical aspects of trading, as well as understand the risk-rewards involved,” he says.

“This information can be accessed from Bursa Marketplace or various other sources, including brokers and investment advisers.”

On ensuring good information flow, Bursa hopes listed issuers will embrace the recent principles issued in the Covid-19 Disclosure Guidance and disclose appropriate and quality information in these uncertain times.

“Investors will benefit from having a better understanding of the events and the impact on the listed issuer, which will help facilitate better investment decision-making. The Covid-19 Disclosure Guidance also seeks to help listed issuers manage investor expectations,” he says.

“Having good investor relations with the investing public will inspire trust and confidence during these challenging times.”

With regard to Covid-19-related disclosures, Umar says announcements by listed issuers have generally been related to cessation of business operations, the impact of the Movement Control Order (MCO) on their business operations as well as any venture or expansion into business activities in connection with Covid-19.

While the economic and operating landscape remains unpredictable, Bursa has observed difficulties by listed issuers in providing greater detail on the impact of Covid-19 on their specific circumstances, with their disclosures being “quite general and broad-based”.

Other instances in which the local bourse finds the information generic includes announcements concerning downsizing or cessation of business operations.

“Disclosures can be further improved with additional details highlighting the impact on specific entities, their financial position or strategy to address such implications,” Umar says.

He also notes that additional information in disclosures on new ventures or business opportunities arising from the outbreak, such as manufacturing or distribution of test kits, would benefit investors.

Investors can also be facilitated to make informed investment and trading decisions by looking at the unusual market activities (UMA) queries and responses from listed companies.

“The decision to issue a UMA query will only be made in instances where the share price movement and/or trading volume of a security is significant, unusual and unexplained after an assessment on various factors has been made,” he says.

“Given the nature of a dynamic market, the exchange does not automatically issue a UMA query to a listed company upon detection of a sudden fluctuation/change in the price and/or volume of its traded stocks. Movements in price and trading volumes vary based on a wide range of factors. A UMA query will be issued in the event that there is a significant change (upwards or downwards) in the price and/or volume of a security which cannot be explained by any corporate development in a listed company,” he explains.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.