For a large part of 2021, the net buyers of the local stock market have been retail investors. Foreign funds are mostly net sellers with some net buying spree on occasions. Local institutions on the other hand have been a consistent net seller for almost every day since the start of the year. There is a transfer of shareholdings from local institutions to retailers and I am particularly concern with this phenomenon. It goes without saying for the stock market to go up, retail investors strong buying momentum alone is not able to push the index upwards. There must be complementary support by local institutions or foreign funds.
Into the 3rd month of 2021, retail investors participation are still very high although last year many analysts have reckon that post loan moratorium, the stock market would see retail investors participation dwindling. Even in the shortened month of February 2021, in terms of value, local retail investors dominate 36.5% against other categories whilst the volume stands at a whopping 45%. This essentially means out of 10 trades, 4-5 of the trades are conducted by retail investors. I believe there are many reasons why this is happening amongst which :
1. ISinar EPF withdrawal (30% of members withdrew)
2. Investors who enjoyed good returns from the stock market in 2020 is bullish that 2021 would be the same
3. Record opening of accounts in 2020 spilled over to 2021
4. Proliferation of social media and “Gurus” advocating the ease of making money from the stock market
5. Low interest rate environment
6. New breed of investors - fearless millennials
When everyone is talking about the stock market, it is usually a sign of a vibrant & "hot" market.
When everyone is justifying future earnings of companies with lofty valuations, that is a sign of the market overheating.
When everyone is talking about loss making penny stocks and justifying speculating it on the basis that “I know it is not a weak company, but I will get out first”, the market is fleshing red signal.
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Food for thought: