The COVID-19 pandemic has had a devastating impact on global economies, sparking huge volatility in stock markets worldwide. However, the lockdowns imposed by many countries seemed to have sparked a strange phenomenon where millennials have piled into stock markets around the world including in Malaysia.
In the past few years, millennial investor participation has been recording steady growth, with participation by this cohort in the local stock market being consistently above 20%. In their 20s to mid-30s, millennials are born between the early 1980s and mid-1990s.
Statistics from Bursa Malaysia show retail investors in the local equity market have witnessed substantial growth in the last few months, coinciding with the imposition of the Movement Control Order (MCO).
The exchange operator revealed year-to-date May 2020 the total retail registered an increase of 30% in new accounts opened while trading activity among retailers registered an 82% increase in average daily value.
The retailers were also net buyers at RM5.1 bil, a whopping 607% increase compared to the same period last year.
Similarly, online brokerage Rakuten Trade has reported a surge in account openings during the MCO period with almost 50,000 new accounts being activated between 18 March and 30 June 2020.
“If one compares this to the more than 100,000 accounts activated since our start in May 2017, about half of the total accounts were opened in just four months,” acting CEO and chief marketing officer Kazumasa Mise tells Smart Investor.
“The surge in retail participation can be attributed to the availability of good-value stocks due to the state of the capital market at the time. Many shares were below their historical prices, so it was a good time for new investors to enter the market and weigh their options,” he adds.
Equity Investment Trending among Millennials
Investing in equities is fast becoming a trend among millennials, and the fact that approximately 80% of Rakuten Trade’s accounts are held by millennials is testament to this.
For context, Rakuten Trade contributed almost RM20 bil in total trading value on Bursa Malaysia since its inception in May 2017. As of 30 June 2020, their retail market share stood at almost 7% while the clients’ assets under trust stood at more than RM1.5 bil.
“From the onset, our fully-digital equity trading platform has appealed to those below the age of 40. This essentially means we are attracting a new segment of investors and thereby, enabling greater retail market participation, and this includes traders with no prior investment experience,” says Mise.
He adds from the company’s perspective, their millennial traders generally find it easy and convenient to use a ‘zero contact’ and ‘low fees’ trading platform.
As to what sectors or industries its millennial account holders are focusing their equity investments in, he says, “Our clients typically trade stocks that are in the news, trending or based on thematic investment such as healthcare-related or oil-related stocks while also generally favouring small- and mid-cap stocks.”
Lok Eng Hong
Maybank Investment Bank regional head of Retail Brokerage Lok Eng Hong says low interest rates globally is what’s pushing savers and investors into equity investment.
“With better access to information and technology, millennials are most prepared to participate in online share trading and investment.
“Investment gains and validation of good analysis attract young investors to develop money-managing skills and later, to begin their own investing journey.
“Millennials are also deeply passionate about global issues that are important to them, and these include Environmental, Social and Governance (ESG), green technology and clean technology. Ultimately, investing in companies that champion good causes makes millennials happy,” says Lok.
Investing in the Era of Technology
Millennials have come of age during a time of technological change, globalisation and economic disruption. Being more diverse, better educated and more investment- and technology-savvy than the generations before them, millennials are fast changing the face of investing and wealth management.
“Social media, private chat groups and easy access to research reports have provided trading insights and ideas to tech-savvy millennial investors during the MCO period,” says Lok.
However, being able to gain access to information quickly with the use of social media and various available platforms does not always positively impact one’s portfolio, Lok reveals.
“Millennials, usually the younger ones, can be influenced by various sources and influences, and we are not just talking about mainstream financial news or analysts’ recommendations – some may also be exposed to ‘expert’ commentaries and ideas, which may or may not be accurate.
“Text messages, views and comments without proper support can easily spread through networks of friends and contacts. Sometimes, great ideas are shared, but more often than not, some high-risk speculative trade ideas are being shared as well,” he continues.
As such, it is important for millennials to remain cautious and to rely on strong technical and fundamental aspects of a professional company and not being drawn into quick gains and rumours, especially during periods of market volatility.
Risk Mitigation is Essential
All investments carry with them some degree of risk, and these risks can range from inflation and interest rate changes to political uncertainties and economic trends. Investing in equities can often be risky especially in times of market volatility such as that caused by the Covid-19 pandemic and resulting economic downturn.
As such, risk mitigation – the process of determining what risks exist in an investment and then handling those risks in the best-suited way – is essential for any investment strategy and can help investors reduce losses and achieve their investment goals.
“With investment of any kind, one must weigh the risks and benefits, and buying and selling shares are no different and must be done with caution,” Rakuten Trade’s Mise opines, adding when it comes to investing, time and effort are very much required.
“An investor must know his own risk tolerance, investment time horizon, and most importantly, his own financial goals. Holding investments for the long term, too, is advisable.”
Mise also goes on to emphasise the importance of financial literacy to make informed decisions when it comes to one’s investments.
“Plan ahead on the possible circumstances that would justify selling. Investors should also avoid getting caught up with emotions that lead to making hasty decisions when their stocks are not performing well,” he advises.
In terms of investment risks, Maybank Investment Bank’s Lok believes new investors should be aware of the risk of them losing all their investment funds, and potentially going into debt from over-trading and the wrong use of high leveraged derivative products.
“Trading on stocks that have no fundamental earnings, poor cash flow and poor business model is a dangerous start. Penny stocks and cheaply priced warrants, too, can also turn into potential big losses as their price drops can be very sharp too,” he cautions.
In addition, new investors should also be aware of the risk of stock price gap down and low trading volume, which will make some stop-loss strategy impossible to execute, says Lok.
As such, investors should consider only value stocks and business models that are sustainable and should always make a practice of verifying if the information received is accurate. “It’s also always good to diversify. Track the market, and keep some cash ready for new opportunities that might arise,” he concludes.
By Bernie Yeo