Age of opportunity
The cost of investing is now at a historical low, with new depths to be discovered as investment technology advances. Channels of communication and data transfers have continued to open up, presenting multitudes of investment options to practically everyone, at relatively low cost. In essence, investing has been radically democratised, as barriers are torn down and financial information becomes readily available to anyone willing to find them.
Considering these factors, there has never been a better time for anyone to be an investor. As financial markets open up, everyone can now partake in ownership of a company, and the potential prosperity that comes with it. If single exposure in a company is too big a risk to stomach, and an investor doesn’t have enough capital to build a portfolio, there’s a lower cost option of diversification: through an exchange traded fund or a mutual fund.
Access to financial markets, touted by many as a great engine of wealth distribution from capital owners to everyone else, is now unprecedentedly easy. Many people, particularly financial gurus or advisors, would call you a fool for not taking the opportunity to begin building your wealth.
Myth or reality?
Is the financial market really as good a wealth distributor as is touted? Surely as equity market indexes have soared towards historical highs, wealth inequality in many regions would have seen a noticeable drop.
In 2017, as the American indexes began climbing towards its peak, The Washington Post reported that those likely to benefit are the top 20%, who own well over 90% of the American stock market. Shifts in the index, whilst having real effects for the wealthy, do practically nothing for the less wealthy.
More on this can be found here:
- The Richest 10% of Americans Now Own 84% of All Stocks
- When the Stock Market Rises, Who Benefits?
- Why only a tiny percentage of Americans benefit from Dow 25,000
The Malaysian Context
The picture is not that much different for Malaysia. Whilst granular information on household wealth is difficult to obtain, proxies such as the amount of savings in the Employees Provident Fund (EPF) and in Amanah Saham Bumiputera (ASB) are often used.
According to the Khazanah Research Institute in its State Of Households 2 report in 2016, 91% of EPF depositors earn less than RM6,000 a month, 83% earn less than RM4,000, whilst the Gini coefficient between depositors stood at 0.658. As at February 2016, the savings of the top 0.3% EPF members are greater than the total savings of the entire bottom 47%.
The picture is bleaker when data from ASB is taken into consideration. The average investment in ASB is RM15,928 in 2014. However, for the bottom 74% of depositors, the average investment is RM536 (down from RM611 in 2012). Conversely, the top 0.2% had an average savings of RM745,038 (up from RM692,087 in 2012). Savings for the bottom 70% merely accounted for a meagre 2.4% of total savings. To put this into perspective, ASB has a fund size of roughly RM145 billion.
The Gini coefficient for ASB is 0.836, which means that it is damn well near absolute inequality.
It could be contended that EPF and ASB figures may not capture Malaysians who could be self employed, or perhaps exclude investors who opt to do it themselves. Using data provided by Bursa, the total number of active CDS accounts (accounts used to deposit stocks bought on the stock exchange) in 2017 is just over 1 million, or just about 3% of Malaysia’s population.
Taking this into perspective, we are looking at an extreme case of survivorship bias. Anecdotes of stock market investment gurus and ‘self-made’ successful investors are perhaps statistical outliers in an already small portion of Malaysia’s population.
Myth, not reality
Given that (i) a large pool of deposits is concentrated at the top, in the case of EPF and ASB; and (ii) the fact that active stock market participators are only a small portion of the population – a case can be made that any wealth distribution within the financial market happens mostly among those sitting at the top.
A large portion of Malaysians are still left out of the alleged wealth transfer program that many claim the financial market to be.
What could be the real reason behind this? Could a lack of financial literacy be the culprit? Or perhaps, since that wealth is pooled within a small portion of the population, many Malaysians lack the financial power to even participate?
Perhaps this is something, we at Saluran Betul will continue to look at.