The rise of the retail investor has been marked by a deluge of financial planning content shared over social media, increased demand for investment coaching events and brokerage firms setting their sights on youngsters.

Online trading platforms have seen a surge in the number of retail investors registering amid the pandemic, which has driven millions into unemployment and made many nervous about their future income.

One of the country’s top brokerage houses, Mandiri Sekuritas, acquired 11,000 new retail customers throughout the first four months of the year, adding to its more than 133,000 existing retail customers. It also reported that the average transaction value for its retail customers almost doubled in April compared to the average value in January.

Indo Premier Sekuritas, which is also among the most active brokerages on the Indonesia Stock Exchange (IDX), is aiming for a 40 percent increase in customer numbers in the next year after seeing a monthly average of 200 to 300 new customers so far this year. Around 60 to 70 percent of Indo Premier’s transactions come from retail investors.

“With many people staying at home, working from home, and with some having their work, business and income disrupted, they have begun to realize the value of investing,” Indo Premier Sekuritas president director Moleonoto told a livestreamed media briefing on June 3.

The number of retail investors in the country had risen to 1.2 million as of June 30, an increase of around 12 percent from December last year, according to data from the Indonesian Central Securities Depository (KSEI). About 40 percent of those investors are aged between 18 and 30, which has been the fastest-growing investor segment in the bourse in the past couple of years. 

“We hope that this can increase our capital market resilience level, especially in times of volatility or economic crisis,” IDX development director Hasan Fawzi said on July 28. 

The rise in domestic retail investors has provided the bourse with a liquidity buffer as foreign investors flee the country and institutional investors grow wary. 

The bourse had recorded a foreign net sell of Rp 24.95 trillion (US$1.7 billion) as of Thursday, with the share of foreign ownership transactions in the IDX’s overall transaction value decreasing to 36 percent from 44 percent last year. Meanwhile, in a historic shift, the average daily transaction value of retail investors surpassed that of institutional investors in June, IDX data show. 

Analysts are of the view that the large-scale social restrictions (PSBB) created an opportunity for young professionals to learn about and enter the stock market as many were working from home and had more time to trade. 

“The main motive is certainly a speculation motive. People project that when buying stocks during a big crash, they will enjoy a big gain when the economy booms,” Jason Gozali, founder and CEO of investor community Investor Muda, told The Jakarta Post on Aug. 6.

The Jakarta Composite Index (JCI), the IDX’s main gauge, plummeted by more than 37 percent to as low as 3,937 in March from this year’s high recorded in February as pandemic fears battered stock markets around the world. The index has rebounded since the deep fall and gained 0.58 percent on Thursday rising to 5,371.47.

Are retail investors responsible for market volatility?

Retail investors trade with a shorter duration, capitalizing on quick gains made during a volatile market, Sucor Sekuritas analyst Irwin Saputra wrote in a research note published on June 25. When a survey asked how long they would hold on to their equities, most retail investor respondents answered under three months, suggesting that they might not put much weight on earnings announcements. 

“Volatility in the market goes up and the movement has become relatively sideways because the holding period and return requirements from our retail colleagues is not too long and is not too high so they can easily carry out active trading,” Sucor Sekuritas head of research Adrianus Bias told The Jakarta Post on Aug. 4. 

Adrianus added that sector rotation within the bourse had been fairly quick. Prior to the rise in retail investors, fund managers had time to capitalize on a limited number of trending sectors as the catalysts driving those sectors could last for two to three months. Now, the shift could happen within a week's time, he noted.

“When the movement in a stock market is driven by retail investors, the stock market can climb quickly, but when it falls, it also falls quickly,” Jason said. 

Jason described this new kind of retail investor as being “very aggressive”, saying that they were shaped to be so as in a situation of volatile stock movements, they were able to make attractive gains within a day. In addition to that, they were more driven by the news than by fundamentals, Jason said. This, as a result, makes the bourse more prone to extreme highs and lows. 

Pilarmas Sekuritas research director Maximilianus Nico Demus, on the other hand, told the Post on Aug. 6 that although it was possible that the rise of retail investors had increased market volatility, it was more likely that the volatility was driven by global sentiment, as global affairs had grown increasingly uncertain in recent times. 

Meanwhile, Mirae Asset Sekuritas head of research Hariyanto Wijaya simply noted that “market volatility always exists in the capital market”, in an email correspondence with the Post on Aug. 6. 

‘Stock influencers’ steer the wheel

Coincidentally, the rise of retail investors has been accompanied by the growing prominence of so-called “stock influencers”. 

Sucor Sekuritas equity and business development director Bernadus Wijaya explained to the Post on Aug. 4 that the opinion of stock influencers carried weight in the decision-making of retail investors. 

“When several stock influencers are of the same view about a particular stock, chances are the stock will rally because the followers of each of those influencers will also buy the same stock in a sizable amount,” Bernadus said. 

Such a phenomenon was to be expected as new investors were still learning their way around the stock market, Bernadus noted, which meant they could be highly influenced by the calls others made. 

Anugerah Mega Investama director Hans Kwee also observed during a webinar on July 28 that retail investors tended to be influenced by herd behavior. 

These behavioral biases are more likely among retail investors than institutional investors, according to Budi Frensidy, a stock market expert from the University of Indonesia. He explained during the webinar that one form of bias was availability bias, in which people tended to take actions based on familiar information without further investigation into the credibility of the information. 

The rise of the stock influencer phenomenon is likely to have been aided by the fact financial literacy in the country remains very low. According to a 2019 survey by the Financial Services Authority (OJK), Indonesia scored a mere 38.03 percent on its financial literacy index. While this is an increase from 29.7 percent in 2016, it is still considered poor.

Will retail investors stick around? 

Market players are still questioning whether the liquidity support provided by retail investors will be sustainable in the long run. 

Adrianus of Sucor Sekuritas noted that many of these new retail investors had yet to experience a full market cycle, and questioned whether they would remain active in the stock market over a longer period. 

Maximilianus, on the other hand, said it was common for there to be winners and losers in the stock market. Those who win are more likely to be tempted to stick around, while those who have lost could either use the experience as a lesson or back out from the stock market entirely, he said. 

Meanwhile, Hariyanto concluded with a more optimistic outlook, saying that “the market liquidity from retail investors should continue, although many are new investors who have not experienced a full cycle in the stock market”.

“Stock investors are forward-looking,” he said, adding that the current all-time low saving and deposit rates meant retail investors could find good returns from the capital market.

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