Local retail investors turn net buyers

by **Cals** Mon 23 Nov 2015, 22:06

Local retail investors turn net buyers

By Kamarul Anwar / The Edge Financial Daily | November 23, 2015 : 9:58 AM MYT

This article first appeared in The Edge Financial Daily, on November 23, 2015.

KUALA LUMPUR: In a year when foreign investors withdrew from Malaysia on the back of declining commodity prices and slowing economic growth, local retail investors have become net buyers so far this month.

Remisiers and analysts contacted by The Edge Financial Daily said retail investors had been targeting lower-liner stocks highlighted recently. This had been reflected in the FBM Small Cap Index’s 1.54% gain to 15,925.32 points last Friday since Nov 2, contributing to the 19.22% gain from this year’s low of 13,357.88 points on Aug 25.

The FBM ACE Index shot up by 41.52% to 6,914.53 points last Friday in less than three months. At this level, it was nearing its highest close of 7,458.03 points on April 21, 2015.

The Small Cap Index comprises the top 98% of companies listed on the Main Market, but excludes the FBM Top 100 Index constituents.

Although there were arguments by market observers and analysts that many small-cap stocks recently favoured by retail investors were backed by strong fundamentals, can the interest be sustained?

A senior dealer from [size=16]Kenanga Investment Bank ([You must be registered and logged in to see this image.] Valuation: 1.95, Fundamental: 1.80) said the market sentiment so far has been recovering, and retail investors — just like any investor — will start to pull out when the market turns bearish.

Back-of-the-envelope calculations showed this class of investors’ daily trade averaging RM1.02 billion between Nov 1 and 19, increasing by RM10 million every month since August, when the average stood at RM988.6 million.

“They (local retail investors) are coming back slowly, as there are more stories on small-caps with good fundamentals coming out. However, I’m not discounting that many retail participants are there to make a quick buck,” the dealer told The Edge Financial Daily.

A head of research said plenty of ACE Market stocks were highlighted and written about recently, and they became trading ideas for retail investors. He listed examples of those stocks as IFCA MSC ([You must be registered and logged in to see this image.] Valuation: 1.50, Fundamental: 3.00) Bhd, PUC Founder (MSC) Bhd ( Valuation: 1.10, Fundamental: 1.85) and Instacom Group Bhd ( Valuation: 0.00, Fundamental: 1.25).

Notably, their stock prices rose between 4% and 40% last week.

Instacom, for example, jumped 36.96% to 31.5 sen last Friday in just two days after CIMB Research initiated coverage on the company.

The research outfit gave a target price of 72 sen for the telecommunications tower builder, which will soon become an in-house contractor for China Railway Construction Co Ltd via an asset injection exercise. To compare, its share price was 23 sen the day before the note was published.

“However, how the momentum will fare depends on what happens if ValueCap Sdn Bhd enters the market this week. If they choose to go for lower liners, then retail investors might just pull out as the big boys have come to play in their field.

“People have been speculating whether ValueCap will buy the lower liners because they are looking for undervalued stocks, but we have to see if that is the case,” said the head of research.

The government recently announced that state-owned ValueCap would be allocated RM20 billion to help boost the overall market sentiment.

Up to last Thursday, retail investors bought a total of RM7.17 billion worth of shares in November, with net buying amounting to RM88.39 million. While the net buying value is nothing to shout about at a first glance, the value for the three weeks in November already exceeded only two months of this year that saw net buying from local retail investors.

[You must be registered and logged in to see this image.]

Local retail investors’ share of total trading value on Bursa Malaysia between Nov 1 and 19 was 26.6%, according to data provided by the stock exchange. This was higher than the average of 22.77% recorded in the first 10 months of this year.

To note, local retailers’ total net buying was valued at RM276.15 million in November 2014. Trading participation came to 25.9%, with total shares bought amounting to RM9.73 billion and the total value of shares sold at RM9.46 billion.

“But will this trend be sustainable? That’s a very good question,”Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew mused. “I don’t think so.”

He said that historically, whenever there is a sudden deluge in trading volume, it is a sign that the market has peaked. Last Thursday, 3.41 billion shares were traded in the broader market — according to Pong — this was one of the highest daily turnover recorded.

“History shows that when investors get so gung-ho with entering the market, there will be a volume spike. That is a warning sign that trading has been over-exuberant. It happened just before the Small Cap Index peaked last year,” Pong said.

He added that subsequent to the spike in volume, a decline in share price had been noted, leading to the Small Cap and ACE indices falling.

The Small Cap Index has been fluctuating since peaking at 19,338.1 points on Aug 19, 2014. It subsequently fell 27.93% to 13,937.01 in just four months.

Nevertheless, Pong noted many small caps do have strong fundamentals, which have contributed to the retail investors’ confidence in those stocks.

According to his calculations, the top 300 most profitable companies on Bursa Malaysia saw an average 12% on-year decline in net profit. But earnings of the bottom 300 companies grew an average 64% year-on-year.

“But now, the share prices [of some of these small-caps] might have run way ahead of the fundamentals. A lot of expectations have been priced in,” Pong said.
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