A SLEW of retail investors entered the equity market in 2020. The pandemic, accelerated digitalisation and increased access to low-cost trading platforms came together to create the perfect storm for the further democratisation of retail investing.
As a result, retail trading was a significant contributor to the surge in the overall trading value on Bursa Malaysia – said to be the highest in decades. The equity market also saw the ascent of the young investor.
With a largely younger trader base, digital equities broker Rakuten Trade Sdn Bhd is optimistic that retail investor participation this year will continue to spur the local market.
“Availability of time given that many are working from home, lower interest rates, market volatility, and increased interest around developing a secondary form of income or savings are key factors that continue to attract millennial investors with greater risk appetite to invest in stocks,” Rakuten Trade CEO Kazumasa Mise told FocusM.
“Our completely non-face to face account opening, easy to use trading platform and jargon-free research reports complemented by a robust rewards programme make it all the more compelling for those who have never tried investing in equities before.”
According to the company which has been disrupting the online trading market with its simplified approach to equity trading since 2017, almost 80% of its users or traders are below the age of 40 with a good number in their 20s, many of whom with less than three years of trading experience.
Financial education
Mise said since retail investors are not created equal, how trading decisions are made can differ despite being within the same age group. Rather, their level of investing knowledge, risk and goal are what sets them apart.
With mostly untethered access to the internet, newer investors are taking to self-education through online resources.
While many younger investors understand the need to carefully comb through the abundance of information available online, some may easily fall prey to scams, schemes and unlicensed parties on social media.
“There has been a rise of so-called online gurus on platforms such as YouTube and Facebook, and we cannot deny that there are some investors who are resorting to short-cuts by taking stock picks and tips from them,” cautioned Mise.
Given the likely modest experience of these younger traders, Rakuten Trade views improving financial education as more essential than ever to ensure well-informed trading decisions are made.
The company provides various options for investors to garner information from Telegram channel and bi-weekly webinars hosted with listed companies to its own Facebook group – RakuRanger Community – which is moderated by licensed staff from the Rakuten Trade Research team to draw discussions from previously unmonitored platforms onto a singular monitored one.
Managing expectations
Above all else, younger investors need to pay attention to corporate actions as they can have financial implications that one may not always be aware of, according to Rakuten Trade’s assistant manager (digital marketing) Hooi Mun Keong who himself is a licensed broker.
Younger traders are typically drawn to three of the more common corporate actions: dividend payments, bonus issue and rights issue.
Hooi observed that many young traders are eager to buy a dividend stock because they can expect a fixed return on investment after a specific date with payments made once, twice and by some, four times a year.
However, as the stock price can typically drop following a dividend pay-out, he advises young traders not to be spooked as this is usually a temporary dip.
He also cautions traders to distinguish between the ex-date which determines the eligibility of earning the dividend payments, and payment date which is when payment in credited to the investor.
When it comes to the bonus issue, investors must understand that once the ex-date has passed, the particular share will adjust in its price according to the bonus issue ratio. This is not because the market cap has changed but there are now more shares that make up the market cap.
On rights issue, Hooi’s advice is for young traders to ensure they understand the reasons behind this corporate action before subscribing. While this results in shareholding dilution due to higher number of shares, a rights issue can be beneficial in the long run as it presents existing shareholders the opportunity to purchase additional shares at a discount.
New investors could also explore investing in initial public offerings (IPOs) but Hooi warned against decisions being made due to “FOMO” (fear of missing out) especially when faced with the volatility of the early trading days.
“Today’s younger trader’s learning curve appears to be shorter and more intense,” he observed.
“While one can become financially literate and experienced in investing, they need to exercise emotional control especially when it comes to corporate actions or it can be a roadblock.
“It is also through trial and error at times that investors discover the value of doing their homework and paying heed to credible experts.”
As of end-June, Rakuten Trade has generated RM80 bil in total trading value on Bursa Malaysia with more than 215,000 accounts activated.
The company holds a restricted Capital Markets Services License (CMSL) to deal in listed securities and provide investment advice. It is a joint venture between Kenanga Investment Bank Bhd and Japan’s Rakuten Securities Inc which is part of the Rakuten Group. – July 14, 2021
