The Lack of Retail Investors Amongst Youth in Malaysia
The retail investing scene in Malaysia has grown and matured in recent years (Toh and Ahmad, 2010). This is in line with the trend seen in Malaysia’s Asian neighbours such as Hong Kong and Singapore. Technical analysis has always been preferred over fundamental analysis in Malaysia (Figure 1) – in recent years, a large portion of the market strongly believed in Technical Analysis, with many books published on the subject-matter, and new businesses have surfaced parallel to the growing interest in technical analysis. For example, the Fred Tam Bookstore was established to exclusively sell books related to technical analysis such as ‘The Power of Japanese Candlestick Charts’ and ‘Charting the Stock Market: The Wyckoff Method’ .
Figure 1: Google Search Trends – Malaysia (18th March 2011 – 18th April 2017)
(Source: Google Trends, 2017)
Institutional players, both local and foreign, unsurprisingly dominate the value of transactions in Bursa. However, counterintuitively, the volume of trades by local retail investors are almost double of the local institutional investors (Bursa Malaysia, 2017). This shows that there exists sufficient infrastructure for most to get started. Therefore, the lack of investing among youth is unfounded. Through informal surveys and experience within the field, we have broken down the youths into five main categories:
Figure 2: Classifications of Youths
Ultimately, we should work on converting the black section, followed by the orange section, then the blue section into yellow. To do this, a more in-depth understanding of the causes are required. Fundamentally, we believe that youths have four main reasons as to why they do not invest:
1. Youths lack interest
Through informal surveys and interviews conducted with retail investors, we have identified a common theme. Youths often express disinterest when engaged with ideas of investment and finance, and it is this lack of interest that contributed to the void in financial literacy among youths. Indeed, most cite investing as ‘boring or not related to their ambitions’.
As most developing countries still focus on traditional jobs, such as doctors, lawyers, engineers, and accountants, many believe that investing is not related to their desired career path. We believe that this is fundamentally due to a lack of literature, or awareness raised by their parents and teachers. For the most part, their parents either push them towards focusing on academics or extracurricular activities that will gravitate towards a traditional degree, without understanding how knowledge in the stock market would impact their future financials. (The Star, 2017).
| 1996 | 1997 | 1998 | 1999 | |
|---|---|---|---|---|
| RM Bil | RM Bil | RM Bil | RM Bil | |
| GDP at constant prices | 183.3 | 197.1 | 182.3 | 193.4 |
| Real GDP (% change) | 10.0% | 7.5% | -7.4% | 6.1% |
| Rate of national savings (% of GNP) | 38.9% | 39.4% | 41.9% | 40.8% |
| Rate of investment (% of GNP) | 43.5% | 45.3% | 28.2% | 23.9% |
| Investment Saving ratio | 1.12x | 1.15x | 0.67x | 0.59x |
| Balance on current account | -11.2 | -15.8 | 36.8 | 47.4 |
| Net international reserves | 70.0 | 59.1 | 99.4 | 117.2 |
Figure 3: Real Economy Indicators for Malaysia (Source: Hasan, 2002)
Hewawasam Puwakpitiyage (2017), in his research report for FLY: Malaysia, notes that some parents were hit hard by the 1997 Asian Financial Crisis. This led to a psychological barrier where they believe that the stock market is something not worth investing. Hassan’s (2002) research complements our argument as he showed that there was a significant decline on the investment saving ratio post-crisis (Figure 3). This same mentality is being passed down to today’s youths. The fear to fail, a culture commonly found in Asian societies (Ranasinghe, 2014), paired with the perceived higher risk from stocks lead to youths sourcing for safer investment vehicles with real estate being a common example of safe investments.
The Malaysian equity market is one of the fastest growing in Asia and has the highest number of listed companies in the ASEAN region with a total of 905 as at 31 December 2014 (Capital Markets Malaysia, 2017). This is partly a result of domestic conditions, which are conducive towards retail investor participation. For example, Malaysia benefits from relatively low transaction costs similar to countries like the UK and US with no capital gains tax (Figure 4). Indeed, Malaysia is also awash with multiple investment vehicles with extremely attractive risk-reward ratios. An example would be Amanah Saham Malaysia, which offers attractive rates of around 5-6% while being relatively low risk. However, the level of youth participation is not comparable to these countries.
| Country | Exchange | Average cost | Tax on capital gain |
| Thailand | Bangkok | 0.28% | x |
| United States | NASDAQ | 0.26% | 10%-28% |
| United Kingdom | London | 0.26% | 18% |
| Hong Kong | Hong Kong | 0.25% | x |
| Singapore | Singapore | 0.24% | x |
| Malaysia | Kuala Lumpur | 0.24% | x |
Figure 4: Online Transaction Costs (Source: Value penguin, 2017)
2. Youths have an interest, but lack the knowledge.
The media has managed to garner an interest in the youth demographic following an increase in popular films such as the “Wolf of Wall Street” and “The Big Short”. Youths have begun to note how knowledge pertaining to stocks and its markets can build a platform to make money. However, there is no definitive guide that teaches Malaysians how to start investing in stocks. Most literature focuses on the NYSE or NASDAQ, while SEA books focuses on the SGX. We divide knowledge here into three parts, the means to get started, the technical expertise to choose stocks, and the availability of information.
The prevalent perception is that there is no easy way for a person without any knowledge to get started in investing. Many assume that a lot of administrative work is required to get started, but in reality, this is not the case. The cause had primarily been a lack of knowledge or awareness in regards to such issues. Indeed, youths often cite difficulty in learning how to begin as the key reason for not investing. They often lack ideas on how to select stocks and do not know how to begin the learning process. FLY attempts to contribute towards a solution through other means, such as debunking myths in regards to stock investing and educating youths in investment techniques.
While workshops focusing on topics such as fundamental or technical analysis do exist, the majority would be priced in the thousands. This results in a situation where the return on investment might not be appealing for the general public. In fact, the cheapest provider that we can find priced their course in the high hundreds (Yee, 2016), thereby raising affordability issues for youths.
Ultimately, the education system has contributed little in improving the standard of financial literacy among youths. The existing exam-oriented system is based heavily on memorization and has created students of the highest distinction but yet, lack the relevant knowledge and skills to start investing. So why are schools not teaching students about personal finance and money management?
3. Youths lack the financial means.
Figure 5: Y-o-Y Comparison between mean income and mean expenditure of Malaysian households (Source: Foo, 2014)
Figure 6: Comparison between mean monthly expenditure and mean monthly income between income groups (Source: Zulkeffeli, 2016)
Youths often cite that it is difficult for them to save up to invest (Weiss, 2016), possibly due to the fact that their main source of income relies on their parents ability to provide them with pocket money. Though it is hard for parents to provide them with cash incentives when they have not much surplus after paying off for necessities. Foo (2014) supported the statement by stating that the mean household spending is growing quicker than the mean household income, which leads to a further reduction in that surplus (Figure 5). Zulkeffeli (2016) further researched on this issue by segregating average household income and expenditure into different income groups and found that the bottom 80% of households are having almost none to pitiful levels of excess cash (Figure 6).
However, the ability of parents making money should not be a main contributing factor to a lack of savings. We found that most youths lack the financial literacy to save any money to begin with. While students may find it difficult to save up, say, RM10,000, some stocks could be traded for as little as RM100, which is very feasible. However, the investing scene lacks representation from young professionals, and they quote this as their main reason. Therefore, we believe that this reason also blends in with the lack of knowledge.
The combination of the three reasons above are the key reasons to why youths find investing daunting and therefore lacking in the stock market. FLY is attempting to change reasons 1 and 2 through research reports, speaker series, and interviews with key industry leaders, and thus optimistically rise the number of youths in the stock market.
4. Societal influence
Many still associate the stock market with a risky investment. The older generation is less accepting towards stock market, primarily due to witnessing the disruptive effects of many economic crises over their lifetimes. In addition to that, older generations who subscribe to conventional values such as earning through safe fixed income – actively discourage the young population to delve into risky investment endeavors, at least until they are financially able.
Millennials who possess necessary skills to conduct trades are demoralized by their parents who have witnessed cyclical stock market crashes, leading them to fear investing. There is a constant fear of a big-scale financial crisis happening, as many expect the next one to occur soon. This deduction is based on the 1987 Black Monday, 1997-98 Asian Financial Crisis and the 2008 Global Financial Crisis. Therefore, many deduce that with a 10 year economic cycle, the next crash is due to occur soon; some analysts are already forecasting another crash to happen to 2018-2019 (Kaur, 2016). This further strengthens the conventional thinking of the older generation where they expect their children to be safe on their income and not to meddle with the stock market.
Possible Solutions
Theme 1: Active student-led organizations
- Organizations which share the goal of eradicating financial illiteracy among youths should collaborate in providing education on the various facets of stock investing such as opening a Central Depository System (CDS) account, implementing fundamental analysis, and technical analysis to provide a holistic view of investing in the stock market.
From our past experience in conducting numerous seminars in Klang Valley universities, a concise structure and content is vital for the public to learn. This helps to ensure that beginners to stock investing will be able to fully comprehend and to not be deterred.
Utilization of visual aids such as videos can be used to provide a clearer flow of the required activities, which includes a step-by-step guides on opening bank accounts and trading using mobile platforms. It is of particular importance that a guide on setting up a Central Depository System (CDS) account, a brief introduction to Technical Analysis indicators, and some Fundamental Analysis techniques are taught to the participants so as to equip them with the basics of stock investing.
In addition to just purely theoretical knowledge, it is also important to provide the participants with practical knowledge, thereby ensuring that the seminars are relevant to potential retail investors. This can be done by making use of various virtual trading and charting platforms that are available free-of-charge.
- Publish more elementary guides, focusing on investment-related topics, on visually-appealing mediums in order to attract readers from the youth demographic.
A large number of currently available materials takes the form of blocks of text. This may be unappealing to the target audience – youths. From our experience in producing research reports and infographics, we have found that presenting information through visual aids are effective in attracting youths and improving their retention. This is particularly true when it comes to youths from a non-finance background since these youths would find a multi-page and text-only report intimidating and would be less interested in reading the article. Hence, it may be more effective to publish and circulate infographics or posters that could clearly guide youths in matters of investment analysis and provide them with guided instructions on the do’s and don’ts of the stock market.
Theme 2: Partnership between SC and student organisations
The SC possesses the expertise and knowledge in investment as well as relationships with the financial institutions but lack the distribution means. We propose that a greater number of partnerships should be made between student-led organizations such as FLY: Malaysia and the Bursa Young Investors Clubs, and the financial institutions and regulatory bodies. Such a move would allow these regulatory bodies to reach the youth demographic at a more efficient and effective manner.
Furthermore, through such partnerships, these regulatory bodies could hold a larger number of events such as seminars or workshops that aim to educate youths regarding the ins and outs of financial markets. By partnering with student organizations, the regulatory bodies will have access to stronger grassroots support which could potentially provide them with logistical aid and marketing facilities that would make the process of holding seminars or workshops considerably smoother.
The aforementioned visual materials could also be take advantage of the distribution networks created by partnerships. Effective distribution of literature and advertising materials, either created by the student organisations or financial institutions, increases exponentially with every increase in universities/colleges it is present in. Among the methods that the partner organisation can employ at the university-level include posting informative posters and infographics on bulletin boards, physically raising awareness through engagement at booths within the respective campus.
In conclusion, it is safe to say that as the number of partnerships with student organisations increase, there will be a rise in events that are jointly organised, and hence, the aim of improving the financial literacy of youths can be more easily achieved.
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