Thursday, 20 February 2014
From fish market to stock market
Last week, we highlighted the fact that retail investors were net buyers in Bursa Malaysia, the first time since August last year. Using the latest data up to 18 February, the share of transaction value of small cap stocks rose to over 25% of the total value of transactions on Bursa, from an average of about 10% since January.
With retail investors turning net buyer with higher volume turnover, it pushes up the performance of small cap stocks. Since early February, the small cap stock index has substantially outperformed, rising by 7.3% against 2.6% for the FBM KLCI.
What does this mean?
Widening risk bandwidth, underperformance of premium assets, higher interest rates and inflation, generally leads to higher risk appetite to catch up on returns. I think this is exactly what is happening. Small, unknown and illiquid stocks are pushed. The warnings signs are everywhere. Please be careful.
It reminds me of a story told by an elderly friend. When people go to the stock brokerages after they have finished their shopping at the wet markets, it may be time for the smart investors to go home and take a rest.