Market meltdown hits thousands of new investors

THOUSANDS of new investors who jumped on the bull- run bandwagon over the past few months were badly burnt this week but many seem determined to stay on for the ride.

One reason for the refusal to cut and run, say experts, is that the bulk of the 'newbies' are well-educated, Internet-savvy types who see value in sticking it out for the long haul.

Others, according to a dealer, want to take 'revenge' on the market and battle on.

'Sophisticated investors are less likely to (sell) in the event of a correction,' said Mr Andrew Liew, head of retail business at the Singapore Exchange (SGX).

'They are able to understand the directions of the market better and look at their options more objectively.'

The new investor surge began three months ago and hit a peak last month when there were about 221,800 active Central Depository (CDP) Accounts - well up on the monthly average of about 161,500 last year.

Brokerage firms told The Straits Times that they had experienced similar increases.

'We've seen a 64 per cent surge in new CDP accounts in the last three months compared to the usual three- month average,' said a DBS Vickers Securities spokesman.

These market novices are a diverse bunch.

Mr Liew said they fall into three groups - foreigners, young graduates and lower-income earners with few academic qualifications.

'Foreigners are increasingly attracted because of the globalisation of SGX,' he said.

Mr Jimmy Chin, a dealer at DMG & Partners Securities, added: 'There are more university students now who trade using the Internet. They are more Internet-savvy and have easy access to information.'

Many of them have also been hurt by the plunging market this week - the Straits Times Index is down 7 per cent over the week - but remisiers say they are still hanging in.

Some will have been sitting on such big profits that the losses this week may have not made much of a dent in their long-term investment outlook.

Mr Desmond Yue, a dealer from OCBC Securities, said: 'There have been so many investors who have made so much money.

'Let's say you've made $10; you definitely would be able to lose $2. I believe that these people will stay in the market.'

Housewife Christina Tan from Tampines is one of the fighters: 'I profited about $100,000 from shares I bought late last year but lost over $20,000 in the last few days.'

She said she will stay in the market and look at the long-term prospects.

OCBC's Mr Yue expects the string of good corporate results will improve investor confidence.

One explanation for the increased resilience during this plunge, compared with similar downturns in the 1990s, is that investors now have a greater understanding of the workings of the market because of the wealth of easily obtained information.

The SGX, for example, has conducted several investor seminars over recent years and teamed up with the National Library Board last month to explain the securities market to novices.

'We see a trend of younger and better-educated people starting to trade stocks,' said Mr Liew.

However, Ms Irene Seng, a trading representative from Kim Eng Securities, has found that some clients were not ready for this week's harsh reality check.

'Many people follow what other people are buying and forget the downside as they try for a quick profit.

'Many have cut losses because the immediate reaction is to sell as everybody else is selling.'

Of course, there can be tangible benefits from going in while others are rushing out, as Mr Gabriel Yap, senior dealing director at DMG & Partners Securities, pointed out.

Mr Yap, citing the May meltdown last year, said: 'If you had bought stocks between May 3 and June 14 at the end of the two-day 'correction', you would have been up 80 to 90 per cent at today's price (levels).'

Ms June Ong, a dealer from OCBC Securities, cited a less tangible reason that might entice investors to stay in the market, as cruel as it can be: 'I think many people will want to take revenge and fight on.'

lanceang@sph.com.sg