Equity Strategy How will this retail rally end?

In normal times, we believe retail investors participate in equity markets to fund consumption, & so sell into market strength. Absent opportunities to consume, this counter-cyclical pattern has broken, resulting in asset price inflation.

09 Jun 2020

The current level of retail inflows is way outside normal bounds

Source: SETSMART, SGX, Bursa Malaysia, UBS

This line chart demonstrates the level of retail inflows in Thailand, Singapore, Malaysia from 2006 to the present.

Retail money is driving the market higher, but its effects could prove transitory

The recent ASEAN equity market rally is being driven primarily by unprecedented retail inflows into cyclicals and small & mid cap stocks, in our view. We see the tailwind as transitory and fading as activity resumes. The Thai and Malaysian indices appear most at risk with Indonesia and the Philippines relatively protected in our view.

This time, retail investor behaviour is different

Thailand has seen BHT100bn of retail net buying in the past 90 days, 0.7% of total market cap, with similar metrics seen in other territories. Retail investor behaviour has changed; normally they sell into market strength to fund consumption but today they aren't selling. Wealthy individuals are unable to consume, helping to drive ~9% Q1 deposit growth in ASEAN, but at the same time deposit rates have fallen ~50bps, they have time to manage their investments, and market momentum is on their side. As they return to work, or the market corrects, the selling pressure could be just as strong.

Culture of retail participation strongest in Thailand and Malaysia

Retail is likely having an impact across ASEAN, and especially so in Thailand and Malaysia where retail participation is UBSe 37% and 30%. But across the region more than twice as many people are searching for "buy stocks" on Google as pre-crisis, and ~37k retail brokerage accounts were opened in Vietnam in April alone. Indonesia and Philippines investors shouldn't ignore the trend, even if retail participation is only UBSe 15-17%.

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