Business

Wednesday May 13, 2009

Higher retail participation in stock market in April

By JAGDEV SINGH SIDHU


KUALA LUMPUR: Retail participation in the local stock market surged in April as the stock market enjoyed one of its best runs in years.

Retailers, which typically account for about 20% of market participation on a monthly basis, gobbled up shares to lift their percentage of total trade to 36% of volume last month.

“Retail participation is extremely high in the market now,’’ said one fund manager. “A lot of remisiers and brokers have been quiet prior to this and are now busy.’’

The participation by domestic institutions in April was 41% of the market, and the share of trades by foreign institutions dropped to 23%.

The return of retail interest in the market, which is important to any rally, has been attributed to a number of factors.

Low interest rates, cheap valuations and sprinkling of positive economic news were sufficient to lift sentiment and get investors in Malaysia and around the world interested in stocks once again.

Seen as a beaten down class of investments, stocks offered investors value as the outlook for global economies improved and did not appear as dire as before.

As global markets rose, domestic investor interest in April started to swell. From a low of 350 million shares on the first trading day of April, investors steadily increased their appetite for stocks and, in the process, increased trading volume for shares on Bursa Malaysia.

Trading volume broke the one billion mark on April 10 and has since only dipped below that level once.

Market activity in May continued to rise and is on average, doing better than last month, reaching a high of 3.83 billion shares on Monday.

Trading volume yesterday fell by over 1.6 billion shares after registering a recent high of 3.8 billion shares on Monday but the level of 2.2 billion shares done was still a healthy number.

“Government funds, in particular the Employees Provident Fund, have been buying stocks but of late, retailers have become more active,’’ said a head of research of a local brokerage.

Evidence of interest from retailers, day traders and stockists has been from the current penny stock rally.

Penny stocks have dominated trade as investors, day traders and stockists buy and churn beaten-down and bombed-out stocks and trading was so high that for a number of penny stocks, daily trading volume represented a substantial percentage of their share base.

Another reason for the interest in penny stocks was quick money.

“The commissions on penny stocks are so low that day traders are already in the money after the stock rises by one bid,’’ said the fund manager. “There is easy money to be made as they go in and out of a stock.’’

One consequence of the rally in penny stocks was that the volume of index-linked stocks, as a percentage of total stocks, was now below 30%, said the fund manager.

While interest in stocks remained high, some analysts have become a little more cautious. They say stocks and current market valuations are moving ahead of fundamentals as the global economy remains weak.

“The recovery may not come so soon,’’ said one analyst.


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