KUALA LUMPUR: Market observers believe market regulators will put a stop to the current unusual, "predatory" trading activity soon as it will weigh down Bursa Malaysia's benchmark FBM KLCI and the broader market.
Buoyed by the success of American amateur stock traders who help drive the share price of ailing gaming retailer GameStop via the subreddit "wallstreetbets", some Malaysians have started their own version at social aggregator Reddit, called "bursabets".
The "bursabets" discussions have so far have centered on glove makers and calls to rally against institutional investors who have kept valuations of the sector low.
"There is a new game in town whereby some retail investors have decided to take on institutional investors who short certain shares," said the Minority Shareholders Watch Group (MSWG).
"Their issue is that the share prices of glove companies having dropped in recent months despite the increasing profits reported by these firms."
MSWG said the retail investors were looking to buy shares of medical glove makers in an attempt to drive up their prices and counter the short-sellers who wanted to push the prices down.
"Generally, institutional investors tend to have deeper pockets. This is not to underestimate the retailers purchasing power. At the end of the day, it may become an issue of who has deeper pockets and the stamina to sustain their initiatives."
MSWG said there might be some unscrupulous retailers including "stockmarket gurus" who may unload their shares after having encouraged other retailers to drive up the share prices.
"The Securities Commission (SC) has constantly warned the public against dealing with unlicenced investment advisers as they could be defrauded or used as part of a market manipulation scheme.
"Eventually, such action by both parties in trying to counter each other will create volatility in the share prices and this may be a risk to the short-term investors," it said.
Axi chief global market strategist Stephen Innes said there could be a huge drop in the benchmark index due to the systematic risk rejection in the broader market.
"This will weigh down and hurt every big cap stock as hedge funds will possibly reduce their risks to cover losses," he told the New Straits Times (NST) yesterday.
Innes said risk mechanisms would kick-off in the short term as the SC and Bursa Malaysia Bhd reign in to regulate the "predatory" trading activity.
"In the meantime, everyone (retail investors) with access to Reddit will be trying to jump on the bandwagon. But the market makers will widen their spread on stocks to make them (investors under the Reddit platform) less tradable," he said.
Innes expects the "predatory" trading activity to abate in a week.
"This (predatory activity) is not illegal but such trading is scorned upon by the general investment community and regulators. They (predatory traders) are going to take this activity to the next level to prompt regulators not to stop them from trading under this Reddit.
"However, stockbrokers can first self-regulate by not accepting the trading accounts from this Reddit community," he added.
OANDA senior market analyst for Asia Pacific Jeffrey Halley said the situation with Reddit/GameStop was unlikely to recur among Malaysian glove makers.
"The favoured trade is to squeeze short-sellers. The (gloves) companies have already rallied massively through 2020, making them unlikely targets in the extreme," he told the NST.
Halley said the SC had a limited list of equities available for either intra-day or regulated short-selling, leaving few opportunities for short-sellers, who are confined only to large and liquid companies.
Bank Islam Malaysia Bhd economist Adam Mohamed Rahim said shares of Top Glove Corp Bhd had risen by more than 6.0 per cent while other glove counters had also jumped as retail investors were seeking inspiration from the GameStop rally in the US.
"Henceforth, a further increase in glove prices cannot be discounted at this juncture with the influx of retail investors especially during the Movement Control Order (MCO) 2.0 period which is said to have high retail participation levels during the first MCO," he told the NST.
Adam said the phenomenon could lead to further foreign net outflow from Bursa as international funds had been selling local equities for eight consecutive trading days.
"Malaysian regulators have always been closely monitoring if there is any surge in sudden stocks. For example an Unusual Market Activity UMA will be issued if the stock price surges by a certain threshold," he added.