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A 'Mind-Boggling' Individual Investor Boom Stirs Up Markets in Asia

03/04/2021 | 05:44am EDT

By Frances Yoon

Stock trading has surged across Asia, as markets have recovered from the shock of the Covid-19 pandemic, with many younger individual investors piling into shares for the first time.

Activity on the region's two busiest stock markets, in Shanghai and Shenzhen, has risen toward levels last registered in China's 2014 and 2015 boom. Trading on exchanges in Seoul and Hong Kong has broken records. Shares are also changing hands in huge numbers in Taiwan, India and some smaller markets like Indonesia and Vietnam.

The upswell has been a gift for exchange operators like Hong Kong Exchanges and Clearing Ltd., whose shares recently hit a record, and for online brokers offering Robinhood Markets Inc.-style services.

Futu Holdings Ltd., an online broker backed by Tencent Holdings Ltd. whose shares trade in the U.S., has rocketed to a $19.5 billion market capitalization as of Wednesday--nearly 12 times what it was worth a year earlier. Shenzhen-listed East Money Information Co. has more than doubled over the same period to claim a $42.4 billion valuation.

"We've seen armies of Asia retail investors appear and invest in sizes that are mind-boggling, both in terms of trading volumes and the value of shares traded," said Herald van der Linde, head of Asia-Pacific equity strategy at HSBC.

In South Korea, individual investors have been net buyers of stocks in record quantities. On Wednesday, individuals made up 49% percent of all stock trading by value on the country's main board, the Kospi, up from 40.4% a year earlier, according to figures from the exchange.

In Hong Kong, the frenzy prompted the government to say it will lift taxes on share-trading by 30%--a move Citigroup analysts say could cut trading values by a 10th. Outlining the plan in his budget, Financial Secretary Paul Chan also said "hectic trading in the stock market" meant Hong Kong was likely to beat its earlier estimate for stamp-duty revenues for this fiscal year.

Like in the U.S., investing apps have attracted individual traders with time on their hands thanks to the pandemic. Social media is also fueling interest: in South Korea, for example, influencers on YouTube and Instagram have helped inspire a new wave of day traders.

"Retail investors saw the flash crash last year as a terrific opportunity to enter the market," said Angus Richardson, co-head of pan-Asian execution services at Citigroup. "People being at home has also increased interest in equities," he said.

Mr. Richardson said the trading surge had made stocks more volatile intraday--and might lift some valuations ahead of fair value--but hasn't fundamentally changed how institutions viewed investing in Asia.

Like in the U.S., individual investors in Asia have been riding market momentum and buying technology, consumer and pharmaceutical stocks, said Robert Levine, co-head of trading and execution services at CLSA.

The value of stock trades matched on exchanges, in what is known as electronic order-book trading, gives a sense of the trend. Such trading on the Shanghai and Hong Kong exchanges more than doubled in January from a year earlier, to $1.37 trillion and $517 billion respectively, World Federation of Exchanges data shows. In South Korea, it more than tripled to $709 billion.

For comparison, similar trading for Nasdaq Inc. in the U.S. stood at $2.2 trillion, up 54% from a year earlier, while for Germany's Deutsche Boerse AG and the London Stock Exchange Group PLC the equivalent figures were $178 billion and $148 billion.

Electronic order-book statistics don't capture some important kinds of trading, like negotiated deals where buyers and sellers agree on big block trades. In the U.S. and Europe, but not in Asia, a sizable chunk of activity also occurs on so-called multilateral trading facilities, rather than on traditional exchanges.

The trading surge is spurred partly by the trillions of dollars that central banks have injected into the global financial system, investors and bankers say. Different dynamics are also at play in particular markets, too.

For example, in Hong Kong, a wave of mainland Chinese money has rushed into the market through a trading link known as the Stock Connect, in search of cheaper shares or companies whose equities don't trade in Shanghai or Shenzhen.

Some households could be moving away from traditional investment strategies, like buying gold in India or focusing on property in China, said Frank Benzimra, head of Asia equity strategy at Société Générale.

"People are realizing that equities can also become a way to build wealth, and that's driving the beginning of this so-called 'equity culture' in this part of the world," he said.

To be sure, the increase in trading volumes and retail participation has yet to be tested by a major drawdown. Activity often surges in bull markets and wanes in a downturn. Many benchmark indexes in the region have hit record or multiyear highs recently.

John Tsai, head of core equities for Eastspring Investments, said online platforms have made it efficient and cheap to invest in stocks--something that wouldn't change even if share markets weakened. But he said in a pullback, Asian authorities were capable of imposing restrictions to discourage people from betting on the stock market.

More broadly, he added: "I wonder if these people understand the risks...They might not be thinking of risk and diversification, especially when markets have gone up 40% in the past year."

Quentin Webb contributed to this article.

Write to Frances Yoon at frances.yoon@wsj.com

(END) Dow Jones Newswires

03-04-21 0544ET

Stocks mentioned in the article
ChangeLast1st jan.
CITIGROUP INC. -1.00% 67.62 Delayed Quote.9.67%
FUTU HOLDINGS LIMITED -2.31% 102.46 Delayed Quote.123.96%
HONG KONG EXCHANGES AND CLEARING LIMITED -0.80% 496 End-of-day quote.16.71%
HSBC HOLDINGS PLC -0.89% 397.45 Delayed Quote.4.91%
KOSPI COMPOSITE INDEX -1.12% 3205.2 Real-time Quote.12.93%
LONDON STOCK EXCHANGE PLC 2.16% 7476 Delayed Quote.-16.85%
MSCI TAIWAN (STRD) -0.74% 690.203 Real-time Quote.15.72%
NASDAQ COMP. -0.71% 14672.677608 Real-time Quote.14.66%
NASDAQ, INC. 0.03% 186.73 Delayed Quote.40.67%
ROBINHOOD MARKETS, INC. 0.95% 35.15 Delayed Quote.0.00%
SOCIÉTÉ GÉNÉRALE -0.86% 24.725 Real-time Quote.45.25%
TENCENT HOLDINGS LIMITED -2.64% 479 End-of-day quote.-15.07%
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