Amateur traders pile into Asian stocks, making the pros nervous

WHEN the coronavirus pandemic sent shares plunging, you didn't have to be a professional investor to spot a buying opportunity. In fact, it might be better if you weren't.

The can't-miss rise of equity markets around Asia is fuelling the explosion of interest among retail investors in the region, mirroring their exuberance worldwide. Millions of investors who had never so much as opened a trading account before have been piling into the market.

Just as the pandemic led bored Americans to make the Robinhood investing app a household name, it's the amateurs who have helped to lift equities from India to Thailand despite some of the worst macroeconomic fundamentals in memory. But it's also giving professionals pause - what happens when these investors are no longer around?

"If everyone is going into the same name and something happens, those names are likely to be sold off quite aggressively," said Catherine Yeung, Fidelity International's investment director. "I think we just need to be wary that market seems a bit complacent at the moment."

In Japan, the Tokyo Stock Exchange Mothers Index, which hosts many tech startup listings, has soared throughout the pandemic: buying the dip on almost any small-cap stock would make money. All but seven of the 320 companies on the board have gained since April's start, from vaccine hopeful AnGes, up 235 per cent, to Precision System Science Co, which is developing a virus test and has added more than 480 per cent.

"If there's a report on TV about a coronavirus-related stock that's going up, they can just buy it the next day and make profit," said Naoki Murakami, a long-time Japanese day-trader. He points to "simple" bets by amateur investors on stocks such as AnGes or Avigan maker Fujifilm Holdings Corp.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

In the US, Robinhood and the Reddit forum called r/wallstreetbets have become a dominant force in the market, boosting everything from the stocks of bankrupt companies such as Hertz Global Holdings to revenue-less startups like truck maker Nikola Corp. That pattern has been repeated in Europe with brokerages in Germany, the UK and France all reporting a jump in participation by individual investors, fuelled by a fear of missing out.

And while the names may be less familiar, the same picture appears across countries in Asia that imposed lockdowns.

Digital habits

Retail investors supported Singapore's exit from bear market territory. Dividends in the city-state are a draw, "and they are sitting at home, they have nothing to do", said Aik Hong Ng, deputy head of Phillip Investor Centre, a unit of Phillip Securities. Some are loading up on debt and leverage to buy more shares.

"Almost-global shelter-in-place measures are entrenching digital habits across all aspects of daily life. This includes digitising our investment behaviour," said Clarie Kwa, chief market officer for wealth management advisory firm 360F in Singapore. "Without the normal distractions of life, people actually stop procrastinating and open their first retail accounts, motivated further by their fear of missing a chance to buy low."

In the Philippines, AAA Southeast Equities saw two to three times more new online brokerage accounts opened each month from March when the lockdown was imposed, said president William Matthew Cabango. Meanwhile, India has seen 1.8 million new accounts opened since March, while South Koreans are borrowing to fuel their purchases.

The amateur

As the first major economy to adopt the zero-interest rate policies and central bank asset purchases that are boosting equity valuations across the world, Japan's experience may be the most informative.

Burned when the bubble collapsed, for years Japan's retail investors have avoided stocks. Two decades of underperformance instilled habits that propelled investors to try to sell at the top. Yet that attitude could at last be shifting.

Japanese individuals opened more than 820,000 online brokerage accounts between February and April, more than double the number in the same period in 2019.

A 35-year-old Japanese housewife, who had long watched her husband and parents buy stocks and get gifts typical for shareholders, never before found the right time to start buying herself.

"I'm THE amateur," she said, declining to give her name citing privacy concerns. "But I saw a chance when shares plunged and I started buying." She's been documenting her experience on Twitter under the handle @kabukonosekai, buying the dips on large companies and planning to hold them long term.

In a regular survey this month of retail investors by Monex Group, just 17 per cent said the plunge led them to sell risk assets and move into cash, with 37 per cent saying they took the opportunity to increase their share holdings.

Long-term return

Well, who wouldn't be happy with their performance in the market that goes up regardless of bad news? The question turns to whether these investors will cut and run during the next dip, or learn new ways to succeed.

In China, interest has waned somewhat. A surge of account openings in March and April coincided with lockdowns throughout the country, but May figures were more muted. China has already had a considerable retail investor presence, with the lockdown stock boom paling in comparison to some recent share rallies.

In Japan, where retail investors are less of a force, individuals' share of trading volume jumped during the state of emergency, and more surprisingly has stayed consistent even as workers have returned to the office.

"Oddly enough, many if not most of the retail investors take a long view," said veteran investor Mark Mobius, co-founder of Mobius Capital Partners, "and they will probably keep their money in the market and think of a long term return." BLOOMBERG