Unable to resist a bargain, more Singaporeans turn to stock market amid COVID-19

Retail investors are taking a chance on equities for several reasons, despite the woes on Main Street. And they have helped to drive the market rally. But what lies at the end of this surge in investment?

SINGAPORE: Estate agent Alan Toh is not one to frequently trade on the stock market.

But after global markets tumbled by about 30 per cent in March as a result of the coronavirus pandemic, he could not resist wading into the market to hunt for bargains.

“During the correction in March, I was worried that prices would come down further,” he told CNA Insider. “I only picked up the moving-up trend in April.”

Despite the grim economic forecasts amid the COVID-19 crisis, US stocks have rallied strongly from their March lows — including some of his investments in technology stocks, such as Apple, Facebook and Alibaba.

He reckoned that he made a five-figure profit from these investments. He declined to say exactly how much he has made from the ongoing rally, only that it is under S$50,000.

“I benefited from the market situation, with the rally in US and technology stocks,” said the 44-year-old. “I’m not a daily trader, but if I see a price correction, I’ll go in.”

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KGI Securities (Singapore) analyst Joel Ng has seen how the drop in the stock market earlier this year has fuelled trading activity among retail investors who had been out of the market for the past few years.

Trading volume for his brokerage house went up 50 per cent in March compared to February. “Another group are new investors, some who’ve been following the stock market rally in the US. People see Apple shares going up,” he said.

And once the market is euphoric, there’ll be more investors.

There is, however, also a note of caution for them in this surge in investment.

TRADING COSTS HAVE DROPPED

It is not just Singapore that is seeing this retail trading boom. Ordinary people in countries like China, the US, Japan and Malaysia have also turned to the equity market in a big way.

Citadel Securities in the US told Bloomberg in July that retail traders account for about 20 per cent of stock market trading and as much 25 per cent on the most active days — up from 10 per cent last year.

Buying and selling securities has also never been easier, with trading costs dropping in recent years.

“Trading costs used to be high, from S$10 to S$50 to buy a stock. So you had to be sure you were making a good call. And you couldn’t trade frequently,” said National University of Singapore Business School assistant professor of finance Ben Charoenwong.

“We had a trend coming into COVID-19 where (lower trading costs) made it easier for people to participate in the market.”

Ng agreed, saying: “Based on anecdotal evidence, the lower prices have created more interest.”

So have smartphone apps, by opening up a world of online stock trading. “Working from home also helps; people have more time and flexibility to trade,” he added.

Robo-advisory platforms, like Syfe and StashAway, have also become popular recently, and said they have benefited from the swings in the stock market.

Syfe said that between February and June, as “the market crashed then rallied”, its number of clients and assets under management grew by three times.

The company added that over the past two months, “the most optimistic investors have benefited significantly from the market rally, with our pure equity portfolio appreciating more than 14 per cent during this period”.

StashAway also said it saw growth, with its nett deposits up 47 per cent from Dec 31 to Mar 31, and its assets under management growing by 4.3 times in the 12 months ending Jun 30.

RISK APPETITE HAS GROWN

The rally in stock markets worldwide in the wake of the COVID-19 pandemic has been partially led by this surge in demand from retail investors.

There are also hopes that the stimulus efforts of various governments will support their economies, amid encouraging reports on companies developing Sars-CoV-2 vaccines.

And with central banks lowering interest rates, many investors have decided to take a risk with equities, as safer investments are “offering dismal yields amid ultra-accommodative central bank policies”, said Securities Investors Association (Singapore) president and CEO David Gerald.

Investors are also taking a longer view, having written off this year, said Vasu Menon, executive director of investment strategy at OCBC Bank’s Wealth Management, on the programme Money Mind recently.

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“Interest rates are extremely low — (there’s) not a great deal of opportunity in many asset classes. Equities do offer promising upside in the next two, three years, so there are bargain hunters looking to buy,” he said.

According to Singapore Exchange (SGX) data cited in a CNA article on Jul 23, Singapore-listed stocks had received a nett increase of S$6.8 billion in retail funds since Jan 6.

That more than offset the nett outflow of S$5.7 billion from institutional investors. Over the same period, the average daily turnover of securities on the SGX for each month increased by about 48 per cent compared to a year earlier.

Commentary: SGX sees boom in retail investments. But can it last?

Gerald pointed out that this rise in retail participation is not limited to securities but is taking place across investments, including forex trading and Contracts For Difference, which allows for asset speculation without ownership or physical delivery of the asset.

BEWARE THE VOLATILITY

The current stock market volatility is cause for concern, however, as 2 to 3 per cent daily moves in the Dow Jones Industrial Average and the S&P 500, are becoming increasingly common, said Gerald.

As these movements will invariably spill over to the Straits Times Index, he reminded retail investors of the importance of going for high-quality stocks with strong balance sheets, and to do their homework before investing.

“As the pandemic continues … people will continue to lose income and jobs. Stocks won’t seem as attractive under those conditions,” he added. “Therefore, can this surge be sustained?”

The worst-case scenario, cautioned Charoenwong, is that an investor loses his job and his stock portfolio value falls at the same time. He said investors should not invest all their money in the stock market.

“You have to be clear about your objective … Why do I want to invest now? Is it just because I’ve got cash, or because I heard from my friends that they’re investing?” he said.

“Are you just betting or is this a long-term investment?”

He added that investors should know their risk tolerance and how much money they are willing to lose in the market.

A regional marketing manager, who declined to be identified, is all too familiar with excessive market speculation.

Bullish about the oil and gas sector in 2018 and last year, he borrowed money from the banks and punted on stock warrants. He soon found himself facing a S$150,000 loss.

“I’d made money from stocks between 2013 and 2016 — about S$100,000 to S$200,000. I was so confident I thought the stock market cycle would repeat,” he said, adding that he had invested those profits in businesses that subsequently flopped.

Unable to pay off his loans, he approached Credit Counselling Singapore for help with restructuring his debt. This year, he has stayed out of the stock market.

“Investment is still critical, but you must have capital (to invest), instead of borrowing funds from other people. Trade within your limit and earning power,” he advised.