Small investors become dip buyers as energy shock sinks stocks

People walk by an electronic board displaying stock trading index at a brokerage house in Beijing, Tuesday, June 12, 2018. (AP Photo/Andy Wong)

SEOUL/SINGAPORE -- Retail traders in Asia are loading up on borrowed money to fund purchases in their brokerage accounts, traders and dealers said, as they chase oil and energy prices higher and scoop up sinking stocks.

An energy shock walloped markets on Monday with crude prices leaping to almost US$120 a barrel and stocks, bonds, gold and nearly everything except the dollar sliding on worries about a prolonged war in Iran.

Yet in Seoul - an epicenter of recent market losses - retail investors were net buyers on Monday to the tune of 4.6 trillion won ($3 billion), increasing their total month-to-date purchases to 15.2 trillion won.

Among them was Kwon Soon-kuk, a 34-year-old Seoul resident who sold 60 million won worth of defense firm Hyundai Rotem 064350.KS and others, while at a coffee shop on Monday morning, to buy stocks like Samsung Electronics 005930.KS on the dip.

“No matter how much it fluctuates up and down, it will eventually go the way it is headed towards,” he said as the Kospi’s losses extended to as much as 8.8%.

Investors have made fresh margin payments to extend positions as well as top up where they have incurred losses, brokers said.

The behavior is emblematic of a habit of dip buying honed in seemingly unstoppable markets in the years since retail trading exploded in popularity during pandemic lockdowns - one which has repeatedly proven highly lucrative.

Some performances have bested slower-moving professionals and their enthusiasm has lifted volumes - especially in the U.S. and Hong Kong - and given the crowd more influence over prices, sometimes exacerbating volatility as many are eager to take big risks.

Investors from China flooded into Hong Kong through the Stock Connect trading link on Monday, with buying hitting a record HK$37 billion ($4.73 billion) as amateur traders rushed to snap up bargains. The Hang Seng Index fell 1.3% and a gauge of Chinese companies with listings in the city slid 0.5%, the shallowest of the declines among major Asian benchmarks.

“The most common question I get is: ‘When do I buy the dip?,’” said Michael McCarthy, CEO of Moomoo Australia, where volumes surged 25% over Friday’s figures on Monday and nearly 55% of trades by dollar value were buys.

“I mean it’s entirely understandable,” he said. “These guys have had a fantastic experience for five years ... but this one looks bad to me.”

Moomoo offers clients Australian stocks, U.S. stocks and options and Hong Kong stocks; most trading on Monday was in Australian stocks and exchange-traded funds, McCarthy said.

Energized

Benchmark Brent crude futures prices LCOc1 are up more than 25% in two sessions to $107, stoking fears of a price shock that is both inflationary and a hindrance to global growth - and some investors are betting it can go even further.

“We have seen an extreme surge in activity in our energy products,” said Kyle Rodda, a senior market analyst at Capital.com in Melbourne, with trading in oil and gas products more than 1000% above average.

“For the most part, traders are just enticed by the volatility,” he said. “However, other data suggests clients have been inclined to buy the dip in U.S. indices as well as the Nikkei and DAX.”

At CMC Markets, clients were buying more leverage on oil positions, purchasing dollars and selling out of crypto into harder assets like real estate or gold, said Christopher Forbes, the broker’s head of Asia and Middle East.

“They’re positioning for higher oil prices ... they’ve made good money from $62 to here in a short period, and expect the trend is higher, even with some profit taking,” he said.

To be sure, traders braved a panic rippling across markets, as index falls in Tokyo slid past 5% and turnover touched its highest point in more than four months, while Brent futures experienced their largest ever one-day rise at one point. Moomoo Australia, the trading platform, said most of its client portfolios lost money on Monday.

“The oil shock is big enough to make investors worry about a broader macro hit,” said Charu Chanana, chief investment strategist at Saxo Bank in Singapore.

But talk soon turned to profit.

SwaggyStocks, a website that publishes analysis of discussion and mood on the popular r/WallStreetBets Reddit thread, showed oil far and away the most popular topic, with more than 1,650 mentions over the past 12 hours.

“Retail investors are buying at low prices on expectations that stock prices will recover fast when the crisis goes by,” said Huh Jae-hwan, an analyst at Eugene Investment Securities in Seoul.

(Reporting by Jihoon Lee and Gregor Stuart Hunter; Additional reporting by Tom Westbrook and Samuel Shen; Editing by Thomas Derpinghaus)