Retail Investors hurt in stock market’s sharp drop in STI Index?

It is interesting to note that during the continuous bull run since the third quarter of 2006 till Chinese New Year in mid-Feb 2007, there are more new CDP accounts set up with the stock broking firms. (CDP Accounts – Central Depository Accounts – have to be created before an individual can trade on the Stock Exchange) The numbers of new CDP accounts set up are:

Sep 2006       –           1170

Oct 2006       –           1923

Nov 2006      –           2243

Dec 2006      –           2977

Jan 2007       –           4266

Feb 2007       –           4125

Monthly average for 2006 is 2130. (Source: The Straits Times 3 March 2007)

These new investors wanted a piece of the action in the stock market seeing the continuous “gravity-defying” rising of the Straits Time Index (STI). During the Chinese New Year gatherings, we hear family members talking excitedly about the stock market and grinning from ear to ear having made huge gains in the stock market. One, while “loh-hei-ing”, uttered that may the STI Index break through the 4000 points! A wish no doubt.

For the new investors and first timers in the stock market, they will certainly feel the heat of the sudden drop in the stock market. The flight from the stock market for those who got cold feet was terrifying. The 28 Feb 2007 (Wed) meltdown saw huge trading of 3.25 billion shares worth a record $4.03 billion changing hands. This huge volume strained the SGX trading system which was unprecedented. (Source: The Straits Times 2 March 2007) As the stock market is a zero-sum game, those who sold at a low price will be matched by those who bought the same share at the same low price. Someone loses and someone gains. There are savvy investors mopping up shares at the low prices and selling them later at higher prices when the market picks up. (But who can do crystal-bal gazing and decide which shares to buy and make a killing? You will need to know the fundamentals of the economy, the stock market, and a particular stock by detailed research. In addition, you will need the nerves and the holding power to hold on to the stock that is still dropping. While the majority investors followed the herd instinct by selling, the savvy investors started buying.)

Another interesting piece of statistics is the number of active CDP accounts for the months:

Sep 2006       –           139,739

Oct 2006       –           156,311

Nov 2006      –           171,731

Dec 2006      –           187,068

Jan 2007       –           221,499

Feb 2007       –           221,804

Monthly average for 2006 is 161,468.

Note: There are about 1.2 million CDP accounts in Singapore according to the Stock Exchange of Singapore (SGX). (Source: The Straits Times 3 March 2007)

Some CDP accounts holders “suddenly” become active again and started trading since November 2006 to February 2007, possibly to catch a piece of the action. This is a jump of 60,000 CDP accounts above the monthly average of active accounts (37% more). This also contributes to the dizzying volume of shares traded on the stock exchange. I am sure part of the increase in the active accounts are due to investors who are cashing out from the shares they had bought some time ago and therefore came on to the market.

Did these CDP account holders make profits during this period?

Written on 3/3/2007 4:03 PM

Copyright © 2007, the author known as LKT in Singapore.

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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