AT the height of retail investor participation in Bursa Malaysia back on Aug 5, 2020, the single-day value of shares traded hit a record high of RM10.45bil (44% of which was from the healthcare sector alone).

       In terms of volume, shares traded hit a record high of 27 billion units during the penny stock mania the same month.

       Where do we stand today?

       Based on the latest monthly Bursa market statistics, for the first month of 2022, the average daily value (ADV) of shares traded was RM1.3bil and the average daily volume of shares traded was 2.08 billion units (excluding direct business transaction).

       This level is a far cry from where it was 18 months ago.

       Of course, there were a confluence of factors back then to make it the perfect ride for investors, especially retail investors, to enter the stock market unlike today, where these factors are no longer apparent.

       These factors include unprecedented policy changes such as bank loan moratorium, Bank Negara slashing the overnight policy rate by 100 basis points, Employees Provident Fund withdrawal schemes and total economy lockdown.

       It was a long-awaited event where retail investor euphoria was unseen since the 1990s.

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       At pre-Covid-19 levels, the retail ADV stands at RM473mil with a market participation rate of 25%. In 2020, the retail ADV reached a record level of RM1.59bil with a market participation rate of 38%, while the retail ADV dipped in 2021 to RM1.33bil but at a constant market participation rate of 38%.

       Yet what worries me the most is retail investor interest in the stock market appear to be dwindling of late. This downward trend has been gradual since the start of 2021 and appears to have worsen in recent times.

       For January 2022, the retail market participation rate has fallen to 29.7%. While it is still early to tell as the year has only started, it is an indication for what is to come.

       Apart from the market statistics from Bursa, there are other indicators such as the declining numbers on social media related to the stock market, readership and view counts for financial resources and lower new CDS account opening number.

       Some may argue with the economy fully reopening, more are going back to work and naturally would have little time for active investing.

       It is important for us to understand the underlying issues behind the fund flows for retail investors.

       Retail investors tend to be short term and due to their limited financial means opt for quick returns rather than sustained holdings over a long period of time.

       This is in fact contrary to the investment mindset which would help retail investors do well and beat the market over time.

       Unlike institutions, which have considerable funds, retail investors mostly believe they do not have the luxury to make losses.

       So it ultimately comes down to profits. If one is not able to get the returns or profits they desire, most would throw in the towel.

       The FBM KLCI and the larger market as a whole have been declining since its peak of 1,896 points in April 2018.

       We are now entering the fourth year of lacklustre performance. What this signifies is if the broader index underperforms, one must be able to pick good individual stocks in order to stand a chance to outperform the market.

       This is where retail investors see the challenge and have a tough time to maintain the mindset or patience to get through the downcycle.

       Hence, why we often hear local retail investors lamenting that they cannot make money in Malaysia’s stock market or that Bursa is an unattractive investment destination.

       In fact, this issue of retail investor participation is not uniquely Malaysia. The peak of the Straits Times Index (STI) was 3,906 points back in July 2007 and it has not revisited or exceeded its previous historical high.

       There have been an outflow of retail investor participation in Singapore’s stock market as well until March 2020 where similarly retail investors came in throngs due to the Covid-19 lockdown.

       The major difference between the STI and FBM KLCI is there are years where we can see the Singapore stock market making a recovery upwards and consistently reaching 3,400-3,500-point level whereas FBM KLCI has been on a clear downtrend ever since.

       As the financial markets and investment landscape evolves, retail investors have more choices than ever on where to put their funds to work.

       In the past, investing beyond our own local shores itself was a challenge due to the lack of technology infrastructure, exorbitant transactions fees and limited access to information.

       With technology, none of these presents a hurdle anymore.

       This essentially means that under the umbrella of the utilitarianism philosophy, the “Rational Choice Theory” provides that people will embark on rational decision making, which entails them choosing among all available alternatives, the alternative that the individual most prefers.

       These alternatives lead retail investors to ditch traditional assets or markets which they are familiar with or where they have the upper hand for other riskier assets or markets plainly for the chase of returns.

       This is why we see many first-time millennial investors, who know nothing about the financial markets or have never invested in the equities market, investing heavily into cryptocurrencies, non-fungible tokens or “meme” stocks which have no fundamental basis.

       This resulted in many traditional investment asset classes and markets starting to lose its allure and consequently lead to the decline in retail investors’ market participation. It is an issue that is plaguing not only our local equity market but will also erode the viability and growth of the local financial sector.

       To put it simply, as the pool of funds within the economic system is finite (excluding occasions where central banks around undertake massive quantitative easing measures like in March 2020), these funds flows into non-value accretive or value generating assets would render the monies stale.

       Hence, it will impact the overall real economy because there will be lesser money in circulation in the real world due to the flow into the “artificial universe”.

       It is vital for all parties to work together to maintain the competitiveness of the local equity market. An important aspect is the financial education of retail investors.

       What most retail investors fail to understand is the market that work against you now does not mean will work against you perpetually. The mindset change is crucial, especially if one is investing with limited resources or savings.

       The regulators, policymakers and stock exchange would also need to do more to attract foreign funds, as foreign fund market participation has fallen to the lowest level in history at 20.4%.

       Pro-business policies should be formulated to encourage participation in the stock market such as tax incentives for institutions that do long-term investments or positions, be it local or foreign fund.

       Lastly, the quality of companies listed should be enhanced and this starts with incentivising potential local unicorn companies to opt for listing on Bursa rather than other regional markets.

       Ng Zhu Hann is the author of “Once Upon A Time In Bursa”. He is a lawyer and former chief strategist of a Fortune 500 Corp. The views expressed here are the writer’s own.