Broader structural shifts are changing investor behaviour, which suggests the evolution away from purely passive strategies.
“Improved access to information has increased the level of investor sophistication. They are now keen on both short and long-term opportunities,” Ken Gichinga, Chief economist at Mentoria Economics, says.
However, at the heart of the debate over trading versus long-term investing, Mr Gichinga says, is an individual’s capacity for risk and understanding of the market. “Much of this depends on the knowledge, acumen and risk profile of the investor. In many cases, the higher the risk, the higher the return. Investors who are just starting out are encouraged to pursue low-risk opportunities as they build their investment acumen.”
Beyond individual strategy, macroeconomic factors also often determine whether investors lean toward active trading or long-term positioning. “A change in the interest rate outlook dictates investment strategy. This is often determined by the inflation dynamics that can arise, for example, from geopolitical situations such as the current US/Israel-Iran war,” Mr Gichinga says.
The implications of increased retail trading activity also extend to the structure and stability of the market itself, particularly in relation to the balance between domestic and foreign participation. “Increased retail trading increases the participation of domestic investors at the bourse, which provides more stability in comparison to foreign investment, which is prone to capital flight,” the economist notes.
As technology continues to alter the financial landscape, Mr Gichinga sees a future where automation and human decision-making coexist rather than competing. “There shall be a place for both. Technology, particularly AI, can increase efficiency in identifying opportunities; however, human intervention is still needed to ensure the priority objectives are still in place.”