In Singapore, it's not margin calls brokerages worry about

Brokerage heads do not foresee a significant jump in forced selling or contra losses even if the market takes a turn for the worst, as high rollers are dwindling in number and simply more cautious than they used to be.

In fact, margin calls are the furthest concern for stockbroking firms here today, as retail participation in the Singapore market stays muted, whether share prices are falling, rising, or going nowhere at all.

Kenny Lo, Maybank Kim Eng's head of retail brokerage Singapore and regional head of products and services, told The Business Times: "Retail interest in the Singapore market has been declining and has hit multi-year lows this year. As a result, there has been a gradual decline in contra trading."

Besides, the house has risk management and credit policies in place to manage market volatility, he said.

Esmond Choo, senior executive director at UOB Kay Hian, agreed: "Contra trading generally thrives in bull market conditions. Under bear market conditions like these, unless there is corporate action in play, hardly anyone would want to contra actively especially on speculative micro-cap stocks."

Today, traditional speculative contra is being replaced by contra trading in blue-chips like banks with a consistent trading range and good liquidity.

"I think this is more sensible than dabbling in contra trading of speculative micro cap counters with sporadic liquidity," Mr Choo said.

The long quiet in dealing rooms across the island is also a sign of how times have changed.

Investment specialist S Nallakaruppan told BT last week: "Last Thursday, the Dow dropped more than 800 points. If you stood up and looked across the room, nobody blinked an eye. No phones rang. The dealing room was so quiet you could hear a rabbit.

"They (clients) are not engaged. In the good old days, people would start panicking and calling you. Those not involved would suddenly try to bargain hunt. Now there's hardly any excitement. If there's a word for deader than dead, that's this."

Jimmy Ho, president of the Society of Remisiers, said: "Investors are more or less on the sidelines, waiting. Traditionally October has never been good, it's sort of a clumsy month. Some good performances by companies are probably being discounted because it's October.

"Some remisiers complain that for two to three days they don't have a single phone call... no trades."

It doesn't help that the benchmark Straits Times Index seems to be tumbling even further away from its 3,641.65 peak in May. The STI closed last Friday at 3,062.51.

Foreign funds are also missing from the equation, Mr Ho reckons: "When the market is good, it's probably foreign funds that are coming in.

"When foreign funds come in and keep the market rolling, that was called a bull run - when everything rushes up and you don't understand why. We haven't had a bull run for 10 years."

Although it is well-known that the Singapore stock market is dominated by institutional fund flows, it is hard to be precise about the level of retail interest here.

The Singapore Exchange (SGX) tracks, but does not publish, data on retail participation. Industry players said retail participation in the market now is probably below 20 per cent of daily trades, from as high as 60 per cent prior to the last financial crisis.

However, investor behaviour has also changed over the years, with exchange-traded funds (ETFs) taking off and investors preferring to play the market through their private banking and wealth management advisers.

Such trades would be tagged as institutional, not retail, which makes the data on retail trades look weaker than it really is.

An SGX spokesman told BT: "Retail investors can now access the market through a wider range of channels... With retail investors becoming more sophisticated, they are also turning to financial advisers who cross-sell a wider suite of retail products such as ETFs based on assets under management by the banks."

Indeed passive investing is a growing trend. Luke Lim, managing director of Phillip Securities, noted: "Under present market conditions, we have seen a segment of investors opting into regular savings plans with PhillipCapital."

But more active punters are also placing bets overseas. Phillip's recent promotional rates for US- and Hong Kong-dollar share financing have been popular with clients, Mr Lim said.

Online trading platform provider Saxo Capital Markets has also seen strong growth in the number of clients trading and actual trade volumes for stocks in the last 12 months, said Adam Reynolds, Asia Pacific chief executive based in Singapore.

"For Saxo the growth is definitely being driven by our international stocks offering rather than Singapore stocks. Our international offering is broad and offers access to 26 markets... clients can trade US stocks from as low as US$3 per trade with Saxo."

Charles Schwab Singapore, which gives investors access to US investment products but not Singapore products via the Schwab platform, said options are its most popular product.

Managing director Greg Baker said: "It is important to note that investing in the US markets does not mean limiting your investments to the US economy. With the US market being the largest and most liquid market in the world, it offers investors a number of benefits that other exchanges find difficult to compete with. Many non-US companies will list their company stock on US exchanges to access the scale and liquidity offered by the US markets."

Local brokers are also getting more revenue outside the SGX.

UOB Kay Hian derives 40 to 50 per cent of revenue outside of the SGX, Mr Choo said. "With the decline in SGX trading volumes, we are seeing a shift in trading to US and Hong Kong counters and CFDs (contracts for difference) in these counters."

Meanwhile, as Singapore's market structure evolves, brokers have new risks to think about, like whether ETFs might trigger excessive selling in a market crash.

Lim Kok Ann, chief executive of DBS Vickers, said: "Passive funds have become part and parcel of the new investment environment, so this does result in markets swinging more during volatile periods, as these funds can account for more than 20 per cent of daily flows on the index component stocks."

But the impact could be reduced if there is sufficient domestically-driven liquidity, he noted.

Marissa Lee

22 October 2018