Asia Wealth urges retail investors to ‘pull up their socks’

Asia Wealth Management is urging retail investors to ‘pull up their socks,’ suggesting a more confident approach to equities investment. Here are excerpts from Asia Wealth’s weekly review:

The market has healed so fast within a very short period lowering the year-to-date loss to -2.7%, despite reaching highs of negative 20%. There are many explanations to the revival in the market, where some see it as arrival of a new regulator, some sees it as the market entering a new phase concluding another market cycle, and another would see it as long-term view on macroeconomic fundamentals in the country extended towards the stock market.

However, the market was in a deep discount prior to the bull run where the ASI hit the lowest of 4,737 during 2012.

What was significant during the period of massive declines in the market was significant withdrawal of retail investors while institutional and high net worth investors were sidelined, yet taking advantages via booking their stakes in fundamental counters carrying attractive valuations.

During the current upsurge in the market the prominent feature is the retail hype created towards investments, whilst institutional and high net worth investors adopting their steady strategic investment plans, which is also witnessed at times where the market is underperforming where despite losses incurred by high end investors they do not panic unlike retailers.

It is also important to stress on the fact that retail investors are an important element in an active market.

Therefore, it is important to address what really distress retail investors during volatility.

One biggest mistake retail investors make is enter the market at the peak where most of the counters are overpriced while being reluctant to enter when it is falling.

Another mistake that retail investors would make is that they are unwilling to sell, being too optimistic in a bull market. Therefore, when it comes to investments it is advisable to have own judgment about profit targets and draw lines when to enter and exit a particular investment.

To top it all, the market has come to a juncture where it has proved its capacity to fuel the country’s growth potential, and to achieve this, support should come from all the parties not only from the high end institutional and high net worth local and foreign investors, but also from retail investors.

Institutional and high net worth investors have already proved their positions and are confident over the market through their steady planned strategies adopted in times of massive losses in indices and they have continued to be involved in the market. Therefore, it is the call for retail investors to pull up their socks.

Meanwhile last week the Bourse concluded the week on a negative note with the ASI dipping marginally owing to profit booking.

The All Share Index shed 16 points WoW to close at 5,910.1 points (-0.3%), whilst the Milanka Price Index also shed by 53.9 points WoW to close at 5,534.3 points (-1.0%). Indices declined mainly on the back of the losses made by Sri Lanka Telecom (- 7.5% WoW), Bukit Darah (-5.8% WoW), Cargills Ceylon (-10.8% WoW), Aitken Spence (-5.3% WoW) and Lanak Orix Leasing Company (-8.7% WoW). The bull run of the Colombo Bourse slowed down to a certain extent where the exorbitant price hikes witnessed during the previous sessions dried up due to profit booking witnessed across the board. The All Share Price Index failed to achieve the much awaited 6,000 points due to the volatile trading activities witnessed during the week. However the active retail participation backed by strong foreign interest has positioned the Colombo Bourse to be a lucrative investment location in the region.

The significant movement of the ASI has also resulted in a P/E multiple of 14.1X, which is relatively higher compared to the other regional peers. However despite the relatively high P/E, foreign involvement continued to persist in the market making year-to-date net foreign inflow of Rs. 30.3 b.

It is evident that foreign participation has started to play a more prominent role in the market, which has stimulated sentiments of both local institutional and retail investors.

Reaffirming this as at 21 September 2012, foreign holding stood a circa of 31% of the total market capitalisation of the Bourse. The week generated a healthy average daily turnover of Rs. 1, 438.7 million together with an average volume of 79.7 m. Strong retail activity on small to mid cap counters coupled with few large investments drove the daily activities during the week.