Dirt cheap, automated on apps and championed by newbie traders who brandish their broker balances on Twitter, the stuck-at-home trading phenomenon, born in the USA, has become a global craze.
Retail’s tentacles are everywhere. In the U.K, tax-free savings account openings at Interactive Investor jumped 238 per cent for investors between 25 and 34 years of age in April and May. In India, newly minted day traders are crowing after falling in love with stocks that trade below 7 U.S. cents apiece and riding most of them straight up. Small-time investors in Moscow bought almost twice as many Russian shares in June than in April.
In Malaysia, individual buyers are at least partially behind giant rallies in medical glove makers -- one gained more than 1,500 per cent this year. In Japan, tiny investors boosted an obscure biotech venture with seven straight years of losses by almost 11-fold on optimism for an unproven coronavirus treatment.
With savings accounts paying out nearly nothing and people finding extra time while working from home, amateur investors who’ve gotten a taste of stock market may become a permanent feature. The trend is being fueled by zero-fee trading apps like Robinhood that have not just simplified day-trading but gamified it. Relentless support of global central banks has also buoyed equity markets despite the worst economic fundamentals in living memory.
“Via news and social media, trading has become the talk of the town. The ease of access, low costs and large moves of many stocks since March have been key drivers,” said David Friedland, Asia Pacific managing director at Interactive Brokers. “The line between institutional and retail continues to blur and retail certainly have shown their ability to move markets.”
The pandemic has kept millions at home just as low-fee trading platforms spread from America to the rest of the world.
“Zero fees are especially beneficial to day traders or scalpers whose participation in the markets are now virtually free. The super-nimble and sophisticated day traders will have a field day,” said Margaret Yang, a strategist at DailyFX. “But there is no free lunch in this world. Higher return is positively correlated to higher risks.”
Warnings like that are everywhere, though doing little to calm the fervor. Professional investors have watched with a combination of amusement and envy as retail investors mostly rejected the tenets of fundamental investing and bought companies at staggering valuations. So far, it’s working for them.
Japanese venture Tella Inc., which says it’s developing a coronavirus treatment under limited testing in Mexico, is the top-performing stock of the country’s around 4,000 listed companies this year. A Korean maker of a malaria treatment, Shin Poong Pharmaceutical Co., surged 987 per cent this year to be the top gainer on the nation’s benchmark Kospi.
“The interest in trading and investing on the part of newcomers, especially millennials and Gen Z, whose time horizon until retirement is 40-plus years, is likely to remain elevated and is one of the main reasons for higher stock prices in 2021 and beyond,” said Julian Emanuel, head of equity and derivatives strategy at BTIG LLC in New York.
Many of the same themes are playing out across the globe. With the virus foremost on almost everyone’s mind, traders flocked to the dozens of companies developing vaccines, treatments and tests, driving a range of pharma and biotech companies. An index tracking Asian health-care stocks is trading at all-time highs.
Individual investors also piled into initial public offerings of biotech companies in Hong Kong and left almost nothing for anyone else. In April, Akeso Inc., a Chinese developer of immunology and oncology treatments, said retail investors had put in orders for 639 times the amount of stock initially made available to them. That feat was exceeded by ophthalmic therapy developer Ocumension Therapeutics’s offering in July, which drew a staggering 1896-times retail subscription, the second highest in Hong Kong this year.
One adage of investing seems to have survived the retail invasion: Fidelity Investment legend Peter Lynch’s advice to “invest in what you know.” The shift online has spurred many digital natives to buy into the services they’re using.
“All the technology shares have been on a stellar rally,” said Edmond Hui, chief executive officer of Bright Smart Securities, pointing to stocks such as e-commerce giant Alibaba Group Holding Ltd., Chinese food delivery behemoth Meituan Dianping and smartphone maker Xiaomi Corp.
His Hong Kong-based platform saw new accounts increase more than 200 per cent last quarter, and trades on its platform jump 57 per cent on year. “It’s natural for them to switch to these new technology sectors.”
For now, stocks globally have done well. But the market that keeps going up must inevitably -- if only just temporarily -- come down.
“This will be the new normal until we get a material correction lower in equity markets,” said Jeffrey Halley, a senior market analyst for Asia Pacific at Oanda Asia Pacific Pte. “Financial markets can be harsh mistresses, but retail traders arriving in the last four months have yet to be given the savage education of two-way pricing risk.”
“The longer the rally goes on, the more savage the reality check will be.”