PETALING JAYA: Retail investors may take a backseat in 2022 after single-handedly propping up the domestic stock market last year amid heavy net selling by local institutional funds and foreign investors.
With inflation rearing its head again and the government unlikely to announce major new stimulus, retail investors could be pumping less liquidity into the market this year.
Analysts said this is because there are fewer “incentives” for the retail investors, including the army of amateur investors that fuelled liquidity in 2020 and 2021, to continue with their investing.
Nevertheless, reduced retail investor participation may not necessarily be negative for Bursa Malaysia even though it has been suffering from low volume of shares traded in recent times.
MIDF Research head of research Imran Yassin Md Yusof told StarBiz that foreign and local institutional investors could fill the gap left by retail investors.
“Another possible scenario could be that the participation from retail investors remains stable, but on the reverse side of the trade as they have been net buying the market since the pandemic began,” he said.
MIDF Research head of research Imran Yassin Md Yusof told StarBiz that foreign and local institutional investors could fill the gap left by retail investors.
Rakuten Trade head of equity sales Vincent Lau, who agrees that retail participation may decline, said that many retail investors are taking a wait-and-see approach.
However, he does not think retail participation will dwindle to pre-pandemic levels.
“Retail participation may reduce due to higher trading costs although this affects the funds more.
“Short selling is also coming back and may dampen retail participation.
“Some retailers may stay in the market. A lot of them were into glove stocks, so some might be stuck,” he said.
In 2021, retail investors were the only net buyers of the Malaysian equity market to the tune of RM12.14bil, according to MIDF Research’s latest fund flow report.
Local institutions and foreign investors were net sellers to the tune of RM8.99bil and RM3.15bil, respectively.
High retail investor participation is not exclusive to Malaysia, but it is also a global phenomena, stemming from the low-interest rate environment and high liquidity driven by government stimuli.
However, as the global economy begins to expand once again, countries are putting an end to fiscal and monetary stimulus measures.
In the United States, the Federal Reserve had begun “tapering” its purchases of Treasuries and mortgage-backed securities in November 2021.
Lau said the bond purchase tapering by the Federal Reserve may take time to run its course, and hence, would not cause a major pull out by investors from the global equities market.
“This is unless some black swan event takes place such as another bad Covid-19 wave.
“But so far, the Omicron variant does not seem as fatal and booster jabs are also rolling out.
“There’s certainly pent-up demand in the economy, we can see that traffic is back, malls are filling up, people are going for holidays. So the economy should get better,” he added.
Amid the lingering market uncertainties, Malaysia’s decision to reinstate the cap that traders have to pay in stamp duties for stock market transactions, albeit at a higher level than before, has provided a sigh of relief for market participants.
Under Budget 2022, the government had proposed to increase the stamp duty rate to 0.15% from 0.1% for stock trading, as well as to remove the RM200 stamp duty cap for such trades.
However, on Dec 30, 2021, the Finance Ministry made a U-turn on this policy, following criticisms from market players, including the operator of the Malaysian stock exchange.
The ministry said the stamp duty cap for the trading of shares will be reinstated at RM1,000, with a rate of 0.15%.
It added stamp duty amounts exceeding RM1,000 would be remitted, and that the remittance would apply to all contract notes from Jan 1, 2022 until Dec 31, 2026 for transactions of stocks listed on Bursa Malaysia.
The move is something to cheer about for all investors, including the retail investors, and is expected to support their market participation moving forward.
Looking ahead, Lau expects retail investor participation in Bursa Malaysia to remain at about 30% or the high 20% level.
“I don’t think it will go down to the teens (level),” he said.
A dealer told StarBiz that the regulators should introduce measures to encourage retail investors’ market participation.
“After the pandemic started, we saw more young people being involved in stock trading.
“The interest in trading among millennials has surely risen, judging from the number of new trading account openings.
“The government must find a way to sustain this healthy interest,” she said.
Meanwhile, MIDF Research’s Imran said that improving the ease of trading and reducing trading costs may potentially spur retail investor interest.
On the market outlook, Imran said sectors that are tied to the economic recovery may benefit.
“We recommend investors to look at automotive, banking and technology.
“For technology, it is a slightly different case as we believe that the sector’s earnings will be robust for the next couple years given its prevalence which was accelerated by the pandemic.
“We also like commodity-linked sectors such as plantation and oil and gas, especially because the elevated prices of these commodities have not yet been fully reflected in the share prices of commodity-linked companies,” he added.