Chew Sutat – The importance of retail investors

Finally a sensible voice from the SGX spoke. A stock market without retail investors is like a bankrupt with no cash. The retail investors provide the life supporting liquidity in a stock market. Getting rid of retail investors is as good as saying goodbye to the big funds and to the stock market. Someone must feed the big funds with profits, and this can only come from the retail investors. For the last decade or so, the big funds are happily sucking away the invested funds of the retail investors to a point that it is critically dangerous, that there will be no retail investors left to keep the market alive.

The pathetic state of the local stock market when the volume generated were mainly from machines and the funds must be telling unless the people in the know choose to put on their blinkers. The pathetic value of many stocks in the main board is another indicator that the market is in the intensive care ward and could go kaput any time.

What is seriously wrong with the market is obvious. It needs to provide a level playing field for big and small investors. The retail investors cannot be victims to unfair practices like trading against machines and computers. These must be removed if the market is not going to die a premature death.

Derivatives or instruments that are pure gambling chips that destroy the value of stocks or against the true value of stocks are also detrimental to the viability of a stock exchange. When healthy companies could helplessly see their stocks being sold down indiscriminately because the funds bid them down through a complex web of derivatives with no regards to the sound fundamental of stocks, it is a very destructive process that must be stopped to save the stocks and markets. When good companies cannot grow the value of their stocks in the market, there is no reason for them to continue listing in the market. Similarly, retail investors cannot continue to plough their money into good stocks for long term investments only to be destroyed by derivative play.

The third point is the uncontrolled influx of unlimited number of stocks in a small market that could not swallow them. To make matters worst, many of the foreign stocks are fly by night stocks and investors have no real recourse to claim back their investments lost through foul play. The exchange has to act responsibility to protect investors and their money by not indiscriminately allowing questionable foreign stocks to be listed here.

Protecting the small retail investors is the key to a healthy and sustainable stock market. The small retail investors must not be left at the mercy of big funds and their destructive machines in an unlevel playing field. Looking at the long term, many serious flaws in the market system and mechanisms must be rectified or else the market is sure to head towards oblivion must quicker than we known. The truth cannot be hidden for too long. It is not only unhealthy, it is sick, very sick.

Would there be strong political will and a little wisdom to make the necessary changes to save the market?