This article first appeared in Capital, The Edge Malaysia Weekly on December 28, 2020 - January 3, 2021

THE novel coronavirus, which has infected more than 70 million people worldwide, is also responsible for the “investing fever” in Malaysia this year, stockbrokers say.

“Over the years, many people did not invest simply because they did not make any money in a flatlining market. But in a volatile market, you win some, you lose some. And when you make some money from the stock market, it is in your blood, you are infected,” a seasoned stockbroker tells The Edge.

Suffice it to say, it has been a surprisingly good year for all in the local stockbroking industry, from remisiers and dealer representatives, to securities firms and the stock exchange, as trading volume and value on Bursa Malaysia hit an all-time high in August during the mid-year stock market rally.

Ironically, many stockbroking firms had prepared for the worst in March, when the pandemic hit Malaysia and a Movement Control Order (MCO) was imposed.

JF Apex Securities Bhd CEO and executive director Leong Sek Hoe recalls that the Kajang-based stockbroking firm was very cautious in extending margin financing facilities when the market crashed in March.

“Margin financing in a falling market is always very [risky]; you don’t know where the bottom is. We try to monitor the margin accounts very closely.”

But as investor sentiment recovered, and the market turned positive, it faced another problem.

“Many stockbrokers were tested because it was now up to us, how fast we could open trading accounts for our clients. We had to respond fast. Some brokers offered cheap rates but their response time was slower, therefore many investors could not wait and they came to us,” Leong explains.

He says interest in the stock market has picked up, even though companies and businesses in general are badly affected by the pandemic.

“Fortunately, we have a few strong sectors in the country, such as the rubber glove industry and the tech sector. People have funds and they don’t know where to put it, so they invest in equities.”

If investors are agile and can make quick decisions, they are more likely to make money.

“The stock market has been volatile; I wouldn’t say it is bullish. There are risks involved, but people are trying their skill or luck. If they analyse certain sectors well, they will do well,” says Leong.

Bursa Malaysia’s trading value surged to a record high of RM10.447 billion on Aug 4. A week later, on Aug 11, its trading volume reached an all-time high of 27.796 billion shares (see chart).

According to monthly statistics compiled by the local bourse, the total trading volume for equities on the Main Market, ACE Market and LEAP Market, exchange-traded funds, bonds and loans, as well as structured warrants peaked at 275.489 billion shares in August.

That is five times more than the total monthly trading volume of 52.789 billion shares in December 2019. In fact, the total monthly trading volume first breached the 100 billion mark in April, and has yet to dip below it.

Meanwhile, the total monthly trading value also increased steadily from RM44.247 billion in January to RM70.358 billion in May, before peaking at RM136.917 billion in August.

An industry veteran admits that he has never seen anything quite like this since the super bull run in 1993 and the Second Board bull run in 1996. He says 2020 is unprecedented on so many levels, especially the steady rise in trading volume and the percentage rise of non-KLCI component stocks.

“If you look at the market today, it is still very much sustained, unlike in the 1990s. It is more widespread; even the millennials are involved. Usually, when there is a stock market mania, the market will eventually fall. But not this round, it would seem,” he observes.

The seasoned stockbroker stresses that the 2020 stock market rally was funded not by stockbroking firms but, rather, fresh money from investors.

“From stockbrokers’ point of view, we could always gauge when the stock market rally was about to come to an end — it was when the broker’s credit limit was exhausted. But this time around, the liquidity does not come from our credit line.”

He attributes this partly to the low interest rate environment, as well as fresh liquidity arising from the loan repayment moratorium.

“While other industries are suffering, the stockbroking industry has been very fortunate. People stay at home, and the whole investing population [is focused on] stock trading. As the market keeps improving week after week, more people have a desire to buy and sell shares, then go back in again. Even though they don’t always make money, because they have made some gains, they feel more confident to trade again,” he explains.

The stockbroker acknowledges that, in March, industry players were concerned that the market would collapse and investors would not return.

“As we have seen, some stock exchanges even temporarily closed their trading floors. Everyone wondered when this would end. Fortunately, the market didn’t stay in the ‘L’ shape. It picked up very fast,” he observes, adding that many people prefer to put their money in the stock market rather than in banks, as the dividend yield can easily beat the interest rate.

“The Malaysian market always has this problem — we were never cheap enough to buy, and not high enough to sell. When the pandemic hit, investors then realised, ‘My God, this is cheap enough to buy.’ That’s when people rushed in. Millennials are on the internet all the time, so they might as well trade too. They tried once, they succeeded, so they try again,” he explains.

Despite an exceptionally good year, JF Apex’s Leong prefers not to get carried away.

“I wouldn’t say that the worst is over for our industry. We have to be realistic. This is a once-in-a-blue moon event. Stockbrokers always believe in a 10-year cycle. All we need is a boom time, and then it goes away. This is not an economic boom,” he warns.

Leong says investors took advantage of the uncertainty caused by the pandemic and entered the market.

“How long this will last, we don’t know. But we think once it tapers off, stockbrokers will continue to face various challenges such as margin compression,” he cautions.

Leong stresses that stockbroking firms will have to focus on the delivery channel, as online trading is the way forward.

“Once people are used to online trading, they will not go backwards. Remisiers need to transform themselves. I always think remisiers will never go out of business. Their advice is always needed. They have their niche and they are here to stay.

“Although we might see fewer remisiers in years to come and they might not be able to make as much money as they did in the old days, as long as they reinvent themselves, we will still see many skilful remisiers in the industry.”

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