This article first appeared in Capital, The Edge Malaysia Weekly on February 28, 2022 - March 6, 2022

AS the US markets pique the interest of some investors looking to diversify their portfolios, Rakuten Trade Sdn Bhd head of research Kenny Yee advises beginners in those markets to start with trading stocks they are familiar with, preferably buying on dips.

Yee says: “The US markets are more liquid, with higher market volatility than Bursa [Malaysia], and investors should plan their trading strategies accordingly. Investors will have to keep up with the news more frequently and set up tighter stop-loss plans.”

He adds that investors should avoid trading on emotions. “It can be hard to resist selling one’s holdings when stocks go through a downward trend in valuation. For fundamentally strong stocks, however, dips in value are likely to recover, and investors should not make knee-jerk decisions based on their emotions at the moment.”

In addition, the risk of loss can be high if investors decide against exposing their portfolio to a wider range of assets.

“For example, if one were to invest only in tech stocks, any events that would bring down the value of the sector would affect the value of all the stocks in one’s holdings,” he says.

Before putting money in any stocks, Yee advises investors to do enough research to determine and understand when to buy and when to sell, otherwise they may get caught in a downward trend and be saddled with a loss in value.

Global markets faced a heavy sell-off last week after Russia launched attacks on Ukraine. Will this affect local investors’ interest in the US markets?

“We’re seeing negative sentiment, but I believe this is only a knee-jerk reaction,” says Yee. Amid the heightened volatility in the US markets, he believes the buying on dips approach remains prevalent.

“The volatility in the US is very high and the trading risk is also very wide. Investors should stay cautious first. If they feel the US markets have gone down enough, then just do some bargain hunting. Things and sentiment will improve,” he adds.

Meta Platforms Inc, Apple Inc and Advanced Micro Devices Inc have been among the US stocks most actively traded by Rakuten’s retail clients in the past month. Year to date (YTD), their share prices are down 41%, 9.9% and 23.72% respectively.

Shares in Meta, the owner of Facebook, plunged 26% on Feb 3 this year, the biggest single-day fall in market value for a US company, after it flagged woeful earnings results on the back of Apple’s privacy changes and increased competition.

In contrast, Apple saw the biggest jump in its share price in 1½ years in January, underpinned by its record quarterly results.

Notably, exchange-traded fund Vanguard S&P 500 ETF is one of the favourite picks of Malaysian investors. It tracks the performance of the Standard & Poor’s 500 index and holds primarily large-cap US stocks.

The few stocks on an upward trend that are worth looking at include Keysight Technolo­gies Inc, Walmart Inc and Pfizer Inc, says Yee, and their values are expected to continue to grow in the short term.

Keysight Technologies — which offers electronic measurement services using wireless, modular and software solutions — is expected to climb in line with the movement of other tech stocks, though its shares are down 25.7% YTD, Yee notes.

Being involved in operating discount stores, supercentres and neighbourhood markets, Walmart is forecast to move higher from its upward trend line, he adds.  YTD, it has slipped 6.7%.

Meanwhile, the recent surge in Covid-19 cases bodes well for Pfizer, which is expected to continue its long upward trend line for the foreseeable future.

Having declined from a record high of US$61.71 last December, Pfizer was trading near its oversold region.

Based on Bloomberg data, the consensus target prices of US$201.36, US$163.33 and US$59.36 for Keysight, Walmart and Pfizer, respectively, represent upsides of 31.3%, 20.9% and 26.6%, against their closing prices of US$153.35, US$135.05 and US$46.87 respectively.

Currently, more than 900 US stocks and ETFs are tradeable on Rakuten’s platform, based on its recent newsletter sent to clients.

It has been a month since Rakuten Trade Sdn Bhd launched its foreign trading services, which allow investors to invest in the US markets.  While declining to disclose how many of its Malaysian clients have started to trade US stocks, the online retail brokerage firm says the response has been tremendous.

“Given that the service was just launched, it is early days. For now, we are very happy with the response,” Rakuten CEO Kazumasa Mise tells The Edge.

“We have had a steady stream of requests to open accounts since, and on the first day of trading when we saw our clients trading well-known stocks and ETFs in the US such as Apple, Tesla, Intel, Microsoft and Vanguard S&P 500. This is the result of our clients’ confidence in the system, our research team as well as the digital trading experience and standards we have delivered since our platform was established in 2017. We are very excited about this next chapter of growth.”

More than 240,000 accounts have been activated since Rakuten — a 50:50 joint venture between Japan’s Rakuten Securities Inc and Kenanga Investment Bank Bhd — kicked off in 2017, and trading in the US market has been the most requested feature, according to Mise. “The US market is a natural next step to Rakuten Trade’s growth, with a wide range of stocks and more opportunities for investors.”

Similarly, Mise notes that it is important for Malaysian retail investors to diversify their portfolios across different markets. “We believe that investors in Malaysia are keen to take the next step to becoming global investors. It not only gives investors more investment opportunities but also allows them to spread out their risk across multiple markets,” he says.

“Trading in foreign equities in US markets may have been also close to impossible for these Malaysians in the past, owing mainly to the lack of digitalisation, high transaction fees and the perception that foreign equities trading can be done only by seasoned investors. With technology today, however, traders can not only trade in the US but also have access to a vast range of digital resources — from education to trading ideas — at their fingertips.”

By leveraging the market diversification strategy, he says, Malaysian investors will continue to build their portfolios with a combination of local and foreign equities.

“This can protect parts of their portfolio from losses should one market be affected. Thus, we believe online foreign equity trading has much potential for growth as the financial landscape evolves, while personal wealth and risk appetite increase.”

The three main indices in the US markets — largely perceived as more volatile and liquid than most markets — notched up three-year winning streaks. In 2021, the S&P 500 rose 26.9%, followed by gains of 18.7% and 21.4% in the Dow Jones and Nasdaq respectively.

In contrast, Malaysia’s benchmark index FBM KLCI was a laggard in the regional market, falling 3.7% in 2021 after rising 2.4% in 2020.

High returns from the US markets notwithstanding, Mise stresses that it is imperative that the risk appetite of a retail investor keen to enter US markets be coupled with a sound trading strategy.

“Investors can make sound investing decisions regardless of trading experience by performing their own research and sticking to a trading plan. When it comes to finding educational content about foreign equities online, however, investors should take care to only utilise investing advice from licensed individuals.”

Asked how easier access to foreign stock markets will affect trading on Bursa Malaysia, Mise says: “It really depends on market sentiment. We encourage our clients to work on diversifying their portfolio. By offering our clients another choice of market to trade, [we can help them] extend the reach of their investment portfolio across both sectors and markets, thereby increasing its holding value and minimising the likelihood of a loss in value.

“For example, if a particular market or sector isn’t doing well, it will rebalance with the others that are performing. This allows the overall portfolio to be optimised to a healthy level.”

After its successful expansion into the US market, Rakuten expects to launch access to the Hong Kong market in Malaysia in the fourth quarter of this year.

Mise says: “Apart from launching new markets, we are also committed to bringing new features to our service offerings, including the much requested US dollar currency trading account.”

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