Here’s how to make the most of your money.
Stock markets have been rallying in the wake the coronavirus pandemic, and that has many young people looking for opportunities to put their cash to work and start investing for the first time.
Last week, major U.S. indices recorded their best quarter in decades. The Dow Jones closed up 17.77% on June 30 to notch its best three months since 1987. The S&P 500 ended up 19.95%, a high not seen since 1998. The Nasdaq finished higher by 30.63%, its greatest gain since 1999.
The boon has been led partially by a surge in demand from individual investors — otherwise known as retail investors — many of whom have been opening online trading accountsin a bid to capitalize on increased cash savings and time spent at home.
And the phenomenon is not unique to the U.S. In Asia, online brokerage accounts have been opening at rapid rates as first-time investors try to keep step with surging stocks.
Asia markets in focus
Like the U.S., markets in Asia have enjoyed a mega quarter.
The Korean Kospi ended the period up 20.16%, its best quarter since 2009; India’s Sensex closed up 18.49%; and Japan’s Nikkei gained 17.82%. Elsewhere, Taiwan’s Taiex was up 19.71%; Australia’s All Ordinaries 17.43%; and the Philippines PSEI 16.66% for the quarter.
To be sure, markets globally are recovering from historic lows following a coronavirus-induced sell-off at the end of the previous quarter, and the majority are still down for the year.
However, that could create continued opportunities for people yet to start investing, or those who want to grow their portfolios, according to Will Cabangon, president of AAA Equities, a Philippines-based brokerage.
“Many retail investors are seeing the Covid stock crash as a ‘once in a lifetime’ opportunity of sorts to get into the market at cheap valuations,” Cabangon told CNBC Make It.
New investors piling in
Since the outbreak, AAA Equities has seen new account openings surge by three to five times compared to pre-Covid daily averages.
Meanwhile in India, Zerodha, one of the country’s largest online brokerages, has seen monthly customer numbers almost double over the same period. In Singapore, HSBC saw self-directed equity investments rise three-times, while Australia’s Westpac Online Investing also noted a “dramatic spike” in trading and new accounts.
For Philippines-based online brokerage COL Financial, much of the new demand has come from young people specifically, who have been using the lockdown period to learn new skills and generate new income, according to its president and CEO Dino Bate. The platform has also seen an increase in viewership of its online market guidance and education materials. A large bulk of these new investors are younger than the average age of our client base, with many of these first-time investors in their mid-20s.Dino BateCEO AND PRESIDENT, COL FINANCIAL
“A large bulk of these new investors are younger than the average age of our client base, with many of these first-time investors in their mid-20s and at the early stage of their wealth-building journey,” said Bate.
But it’s not just boredom motivating investors. Central bank policies aimed at curbing the worst of the virus’ economic repercussions have pushed interest rates lower, prompting savers to look beyond regular savings accounts.
“Low deposit rates in banks also brought new investors looking for higher returns compared to other asset classes,” noted Zerodha’s founder and CEO, Nithin Kamath.
Worrying the professionals
The new demand has worried some professional investors, who note that the sudden influx could be met with an equally quick exit if new investors get spooked by a sudden downturn.
To be sure, much of the rally has yet to be backed up by major improvement in global economic data.
“If everyone is going into the same name and something happens, those names are likely to be sold off quite aggressively, Fidelity International’s investment director Catherine Yeung told Bloomberg. A great deal of new investors have seen double, or even triple, digit returns since the market bottomed out in March.Will CabangonPRESIDENT, AAA EQUITIES
However, HSBC Singapore’s head of wealth and international, Ian Yim, said he is not concerned, and noted that he doesn’t have a “big quarrel” with current market pricing. Cabangon agreed, though he said investors should “recalibrate expectations” in anticipation of further market moves.
“A great deal of new investors have seen double, or even triple, digit returns since the market bottomed out in March. It’s great that their first experience with markets has been so profitable, but they should be ready to experience some chop as we revive this economy,” said Cabangon.
Advice for beginners
The best way for newcomers to safeguard against those ups and downs while still taking advantage of the stock market is to invest in a diversified portfolio, the experts agreed.
“Look for solutions which are diversified rather than concentrated,” and avoid trying to time the market, noted HSBC’s Yim.
Low-cost index products, mutual funds or ETFs (exchange traded funds), which track major indices, can be a great place to start. Then, once you begin to better understand the “intricacies of stock picking,” you can move to direct equities, advised Zerodha’s Kamath.
Finally, invest for the long term, said Bate. “Investing in the stock market is really for the long term — it’s not a get-rich-quick scheme where you make money overnight. It’s buying good quality companies that will grow your money as they grow their businesses.”
Sectors to watch
While markets are experiencing a general upswing, more experienced investors may want to hone in on specific industries that are growing under the new environment.
“Stick to companies in sectors that are more resilient against the impact of the pandemic, such as telcos, food manufacturers, utilities/power, and retailers (essentials),” recommended Bate.
Pharmaceutical companies could also present a good buying opportunity as the world continues its search for an effective coronavirus vaccine, noted Kamath.
Finally, in the Philippines specifically, banking stocks look “particularly exciting,” said Cabangon. The pandemic has fast-tracked the digital economy and moved more people toward financial services in the largely unbanked nation, he added.
“This is the opportunity for the banks to tap into the 75% who are unbanked.”