PETALING JAYA: Dismayed by the low-interest rates, retail investors seeking higher returns for their cash are expected to remain buyers in the stock market. But there is a time limit on how long they will do so.
As optimistic as they may be, retailers have come to realise that what goes up must come down, looking at how the FBMKLCI rebounded off its March 19 low.
A survey conducted by CGS-CIMB Research involving 1,122 retail investors revealed that they were generally bullish but do not expect that the rally in the market to last more than six months.
Some 41% of respondents expected the market to deliver a return higher than 10% while 80% predicted that the rally was sustainable.
CGS-CIMB said the four biggest concerns among the investors that could trigger profit-taking were a sharp fall in global stock markets, an economic recession, external factors, and politics.
“As such, when profit-taking sets in, we could see higher volatility in the market.
“At this juncture, it would appear that investors are not planning to splurge their gains on big-ticket items like property and cars.
“We do not expect a significant spillover of the stock market gains to these sectors, ” the research house said in a note, adding that they would not be surprised if a market correction happened as the current price to earnings ratio of the FBM KLCI is at three standard deviations above its three-year average.
Among sectors that were favoured by the retailers are technology, gloves and healthcare, oil and gas, banking and consumer.
There has been a strong comeback of retail investors in the local bourse since March as they took advantage of the government’s stimulus packages to pump in liquidity in the market to do some bottom fishing.
Volatility in the market persisted which provided an avenue for punters to make a quick buck.
Market observers have been associating the positive momentum on Bursa Malaysia with the strong return in retail investors, evidenced by their increased share in daily trading values in May, which rose to 36% as compared to the average in the past five years of 20.6%, according to CGS-CIMB.
Bursa Malaysia statistics showed that retail investors have been net buyers of the equity market by RM5.9bil from Jan 1 to June 18.
This is about 62% of the total net buying by local institutions of RM9.5bil for the same period, which helped to offset the net outflow from foreign investors totaling RM15.4bil.
The FBM KLCI closed at 1,502.63 points yesterday, which compared with the low of 1,219.72 points three months ago: a 23.19% jump. Observers are saying that the market may be running ahead of its fundamentals.
RHB Investment Bank regional equity research head Alexander Chia said the market is a reflection of forward and future expectations and with things expected to improve, the market is actually trying to price this on.
“The entire 2020 results are irrelevant because where the market is right now is already looking forward. People are saying there’s a real disconnect between the market and the economy but the market is trying to price in future expectations as far as six to nine months ahead.
“Of course, the fundamentals, earnings, and valuation will catch up at some point, ” he said. To position themselves going into 2021, Chia said investors need to start looking at stocks that will benefit from the uptrend such as commodities, banks, consumer, plantation, and technology, which are common sectors that will perform in an economy that does well.
As markets start to bubble with optimism, there are greenshoots of caution that are emerging. Schroders research and analytics head Duncan Lamont said in a note that while some stock markets have staged remarkable comebacks since the precipitous fall of March, it did not mean that investors were already out of the woods.
He conducted some in-depth research which revealed that “false dawns” were an unfortunately uncommon occurrence.
This is when markets rebound after steep falls, only to subsequently fall further than the original lows.
Meanwhile, CGS-CIMB also pointed out that there is a rising popularity of roboadvisors among retail investors.
GAX MD Sdn Bhd managing director and chief executive officer Ronnie Tan said there has been a healthy growth of between 23% and 25% month-on-month in its assets under management for its digital investment management service MyTheo.
“There have been redemptions but it is not much. In fact, we see more investors opening accounts with us.
“If you have money, don’t invest the whole lump sum in just one place. Stagger it.
“A roboadvisor for example, is a long term investment and it has no bias or human emotions involved and it does not time the market, ” he said.