Speculation livens up stock market

  • Business
  • Saturday, 12 Nov 2011

A RESURGENCE of interest in low-priced stocks, as traders actively hunt for the next big run in the local stock market, has thrown several penny counters into the limelight in recent weeks.

According to Bursa Malaysia’s record, at least six unusual market activity (UMA) queries have already been issued since the start of this month to penny-stock counters for the steep increase in their prices and sudden surge in volume.

These include textile and chemical producer Maxbiz Corp Bhd; technology services provider GPRO Technologies Bhd; timber manufacturer Harvest Court Industries Bhd; plastic injection mould fabricator Sanichi Technologies Bhd; oil and gas investment holding company Hibiscus Petroleum Bhd; and consumer products trader Emico Holdings Bhd.

Other penny stock counters that have also been actively traded in recent weeks were leisure management and property development company Karambunai Corp Bhd; air and water filters manufacturer Envair Holdings Bhd; technology company Patimas Computers Bhd; and engineering and construction company Sumatec Resources Bhd.

While the activity of penny stock punters may seem to have injected some vibrancy into the local stock market (given the fact that the overall volume of shares changing hands have become heavier than usual, surpassing two billion units in some days), history has shown that such a trend has never been a sustainable one.

As Maybank Investment Bank Bhd head of retail research and chartist Lee Cheng Hooi puts it, “these are fleeting plays”.

“Such punters will run once they make their money, leaving others high and dry,” he says.

In his report, Lee has already said “it is unwise to join the recent penny stock activity, as those stocks do not have any fundamentals, and the companies are loss making”, advising investors to exit and take profits swiftly.

“I don’t like their charts,” he says, in reference to some of those penny stocks that have been in the limelight.

“Too many gap-ups, and too drastic a price rise. It’s not sustainable because there’s no fundamental supporting their valuations,” Lee explains.

Mixed performance

The share prices of the penny stocks that ran up recently closed mixed yesterday, but in general, most have started showing some signs of weakness.

Maxbiz, Sanichi and Patimas shed half sen to 11 sen, 8.5 sen and seven sen, respectively.

Hibiscus shares lost half sen to 74.5 sen, but its warrants were up one sen to 47.5 sen. Sumatec shares also lost half sen to 19 sen, while its warrants were unchanged at 14 sen.

Emico shed one sen to 32.5 sen, while Envair lost four sen to 32 sen.

Karambunai was unchanged at 18.5 sen, and GPRO gained one sen to 14 sen.

Harvest Court continued its momentum, rising 23 sen to RM1.65, while its warrants were up 21 sen to RM1.39. The stock has been shooting up since Oct 13 from 8.5 sen. It started the year at 13 sen. Harvest Court over the week announced that its subsidiary would enter into a related party transaction with Sagajuta (Sabah) Sdn Bhd for a RM129mil mixed development project in Kota Kinabalu.

Datuk Raymond Chan Boon Siew, a substantial shareholder of Sagajuta, has recently raised his stake in Harvest Court to 15.41%, while Mohd Nazifuddin Najib, the son of Prime Minister Datuk Seri Najib Tun Razak, has raised his to 1.59%.

Sanichi, on the other hand, has caught the eyes of German firm Projektarbelt Tecnhische Beratung Venretung International (Protev), who is interested in taking a major stake in the company. Over the week, Sanichi announced that Protev had completed the first phase of its due diligence for the proposed acquisition, and was expected to conclude the second phase early next year.

Meanwhile, Hibiscus has recently announced it would acquire a 35% stake in Lime Petroleum plc, a company incorporated in Isle of Man, for a total cash consideration of US$55mil.

Envair had earlier announced an ambitious venture into the oil and gas sector for the supply of two million barrels of light crude oil monthly over 60 months to China-based An Hong Shenzhen Industrial Co Ltd. But the loss-making company had clarified that the proposed project was still at a preliminary stage. It also clarified that its joint marketing agreement with Resscom Petroleum Sdn Bhd to trade light crude oil was also at preliminary stage.

Besides these few announcements, none other was made by the other penny stock counters. In most instances, most have said that there was no major corporate development that could have contributed to the run-up of their share prices. Some admitted to falling victim to pure speculative trade.

Necessary evil

The active trading in lower liners is usually driven by the quest for quick and sharp gains.

According to Jupiter Securities Sdn Bhd head of research Pong Teng Siew, such risky bets are not a game for the faint-hearted.

In this game, he explains, the players are usually very seasoned “investors”, who have the necessary skills to manage their portfolio, and can move at great speed.

“They are not too concerned about long-term prospects,” he explains.

As to whether that such is an unhealthy trend for the market, Pong says, “it’s a normal cycle, which I would say a part and parcel of capital market development.”

Another market analyst says, such punter’s activity is a “necessary evil” for the stock market.

“It’s always better to have more vibrancy, whether it’s good or bad,” he explains.

While regulators have warned investors to trade cautiously, dealers say such advice is often not heeded.

“People are still driven by greed... yes, they might get their fingers burnt if they didn’t get out in time, but then again, they should know when they make the decision to participate in this play, it is to their own risk and peril,” a dealer tells StarBizWeek.

Ensuring order

In their email replies to StarBizWeek, stock market regulators stress they are closely monitoring the unusual market activity in penny-stock counters.

The Securities Commission (SC), without going into too much details, say, “In the discharge of our regulatory obligations, we are vigilantly monitoring all counters and price movements to ensure a fair and orderly market.”

“We have our own market surveillance system to monitor and detect any irregular or unusual market activity for all transactions, whether by local or foreign investors. We will then review these transactions to determine if any further action is required,” the SC adds.

Bursa Malaysia says it takes the obligation to maintain market integrity as a priority, and views any attempts to manipulate share trading seriously.

“Where there are instances of suspected market offences, the Exchange will investigate and take the necessary actions,” an official from Bursa Malaysia says.

“While there exists a certain amount of speculative trading in most markets, what we do not tolerate is manipulation and interference with price discovery,” he adds.

Bursa Malaysia, as a frontline regulator, undertakes real-time surveillance and monitoring of all securities trading. Where there are instances of unexplained share price or volume movements, the Exchange will conduct a review and take necessary actions such as UMA queries.

“UMA is a tool to procure disclosures to the market when there is a sudden increase or significant change in share price or volume. Such query is part of the continuing disclosure framework under the Exchange Listing Requirements, and it is aimed at providing investors with material information in a timely manner to facilitate informed investment,” Bursa Malaysia official explains.

“Where the Exchange’s review reveals a market offence, the necessary enforcement actions will be pursued if it falls within the jurisdiction of the Exchange. Otherwise, a referral will be made to the relevant authorities.

“The Exchange also has in place pre-emptive tools, which may not be apparent to the market, to address and curb disorderly trading,” he adds.

A market observer says, “as far as the regulators are concerned, they have already done their part in ensuring orderly trade. Ultimately investors themselves have to learn how to make informed decisions.”

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