Buying shares: 400,000 Aussies enter the market
The recovery of US stocks and the profusion of new trading platforms drew huge numbers of novice traders.
Did you start investing during the pandemic? You're not alone. New data from research firm Investment Trends shows over 400,000 Australians placed their first trade in the Australian securities market over the last 12 months.
Newer investors are young and flocking to international markets. One in six first-time investors is under the age of 25, the Investment Trends survey finds. Participation in international equities trading doubled from 54,000 to 109,000 in the 12 months to December 2020.
Irene Guiamatsia, head of research at Investment Trends, attributes the historic growth to the strong recovery of US stocks in the months after the pandemic-induced market crash and growth of investment platforms offering access to global markets – many at zero commission.
“The spectacular recovery witnessed by US stocks in the second half of 2020 has captured the attention of a global audience, prompting many Australians to consider investing beyond local equities," she says.
"A greater choice of investment platforms has been a key driver for uptake, with recent new entrants giving investors more choice than ever."
Morningstar data shows the market downturn caused by the covid-19 pandemic was one of the most severe in recent history, but it also proved to be one of the fastest recoveries. After a decline of 20 per cent (in real terms) from December 2019 to March 2020, the US equity market fully recovered in just four months and was back to its pre-crash level by July, soon pushing higher.
Source: Paul D. Kaplan, Ph.D., CFA, director of research with Morningstar Canada.
Platforms, social drive growth
Angel Zhong, a senior lecturer in finance in the school of economics, finance and marketing at RMIT University, says the growth in new investors is driven by several factors including low interest rates, dramatic volatility in the share markets around the world, and the emergence of low-cost trading platforms like SuperHero, Stake and eToro.
"Retail investors are shown by research to prefer low-priced stocks," Zhong says. "The fear-of-missing-out and get-rich-quick are general behavioural biases observed in retail investors.
“Low-cost trading platforms further fuelled and lured young and novice investors’ entrance to the share market for the very first time," she added.
Data released by Commonwealth Bank reveals more than 230,000 new accounts were opened on its CommSec platform or through its Pocket accounts over the last half year. The number of first-time traders has more than doubled since February 2020. The majority of these new CommSec customers (83 per cent) were under 44 years of age – a 17 per cent increase compared with pre-covid trends.
Meanwhile, Australian-born trading platform Stake saw a surge on sign-ups and an increase in trading volumes in the first half of 2020. The online broker has amassed over 100,000 users since launching three years ago. New users jumped 129 per cent in the six months to June 2020, compared with the previous half-year.
Zip and Afterpay-backed trading platform SuperHero, which launched last year, told investors it had attracted 35,000 customers at the end of January.
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Zhong also points to the growth of unmoderated financial and investing advice on social media platforms like YouTube, Facebook, TikTok and Reddit, which she says is driving social trading. Social trading refers to investors acting on investment advice they receive online, often unlicensed. It can also refer to a feature offered by several brokers that allows investors to copy the trades of others on the platform.
"Both are at play here, although the former is more prevalent in Australia," she says.
Zhong says external economic factors like government stimulus payments are associated with larger increase in retail trading volume. "Countries with larger gambling revenue prior to COVID-19 were associated with a greater increase in retail trading last year, since investors see the stock market as a substitute for gambling."
The new cohort means Australia's active retail online investor population stands at 1.25 million, Investment Trends estimates.
Education rethink
Both Zhong and Investment Trends say the entrance of new, inexperienced investors must be met by financial and investing education.
“Too many times we’ve heard stories of investors getting caught up in FOMO, making rash short-sighted investing decisions. But our research highlights that investors are hungry for knowledge, resources and tools to help them build long-term wealth," Guiamatsia says.
CommSec launched their new Learn program last month which "arms investors with knowledge to make informed investment decisions". The broker reports a 200 per cent increase in investors seeking executional information via the website, such as “how to place a trade”, over the past 12 months.
"There was a thirst for learning; however, it was interestingly leaning towards more executional topics with fewer clicks on the important basics such as planning or strategizing," CommSec executive general manager Richard Burns says.
Zhong believes investors who lack financial literacy are vulnerable to social trading and could incur losses in the share market.
The Investment Trends 2020 2H Australia Online Investing Report was based on a survey of 18,731 investors and traders.
