MAJOR stockbrokers have yet to press the force selling button, which may affect as low as 20 companies and the tally may go up to 30 companies.
It is learnt that brokers have exercised restraint as they feel the selling on some counters is driven by panic due to the extenuating circumstances arising from the economic gridlock and compounded by short selling by traders taking advantage of the situation.
“These are counters where the stocks are held by major shareholders who had pledged their shares for margin facilities. If the force selling takes place, the sell-down can be very fast.
“But brokers have exercised restraint because they know it’s extraordinary times, ” says a broker adding that the big jump in Bursa Malaysia yesterday would help improve the margin positions of many of these companies.
So far, there has been some force selling of some counters. Notably is Dagang Nexchange Bhd (DNeX) where one of its substantial shareholders, Censof Holdings Bhd saw its shares being force sold by MIDF Amanah Investment Nominees.
According to the announcements, Censof disposed a total of 114.51 million shares over four days. The first transaction was announced on March 12, followed by March 18,19 and 20.
Based on the figures in the announcements, Censof’s cost of investment is about 20 sen per share, which resulted in Censof taking a total hit of an estimated RM45.8mil from the disposals.
As of yesterday, Censof’s position in DNeX has been trimmed down to 7.23%, from 17% before the disposals.
The panic selling due to the Covid-19 outbreak is the second to rock the stock market since May 2018, when there was a change in government following the 14th general elections.
Both companies are dependent on government jobs and as a result, their shares fell stiffly. Datasonic saw the exit of its long serving managing director Datuk Abu Hanifah Noordin and entry of Datuk Razali Mohd Yusof, following shareholding changes.
Datasonic is seen as the top contender for the country’s new Integrated Immigration System (IIS), an integrated solution for border and immigration control that is being called for tender after the previous RM3.5bil Sistem Kawalan Imigresen Nasional (SKIN) project that was awarded to Prestariang was revoked.Over the past three days, proprietary day trading (PDT) and intraday short selling (IDSS) activities for affected stocks have also been suspended.
Counters which decline by more than 15% from the reference price will face a suspension of PDT and IDSS activities. Alternatively, the suspension of PDT and IDSS also applies to a daily gross short selling volume that exceeds more than 3% of outstanding shares for each counter.
Some of the companies affected by the suspension include GUAN CHONG BHD, V.S. Industry Bhd, DRB-HICOM BHD, Pavilion Real Estate Investment Trust, HENGYUAN REFINING COMPANY BHD, Frontken Corp Bhd, Mega First Corp Bhd, Serba Dinamik Holdings Bhd, INARI AMERTRON BHD and AEON CREDIT SERVICE (M) BHD.
Amidst the sell down on Bursa, brokers are increasingly stricter in terms of compliance to ‘top up’ rules for shares that are pledged in return for margin facilities.
“The management of broking houses are stricter when it comes to compliance with regards to clients putting in more money if the value of the shares fall. Investors are told to top up within the next few market trading days to avoid force selling.
“Previously clients are given a few days to top up even if their account breach the margin limits. The leeway is normally accorded to big clients with large positions, ” says the broker.
The broker explains that this is to ensure an orderly sale of the stock in case the `big client’ is unable to meet the additional payments.
Normally when the value of the portfolio drops by 70%, the broker will send out warnings for the clients to top up. If the value drops by 80%, the force selling will take place. The limits are lower for the smaller brokerages with a smaller balance sheet.
The FBM KLCI has been sliding for six consecutive trading days as investors liquidate shares for cash amidst heightened fears over the Covid-19 outbreak.
On Thursday, the index closed 1.56% or 19.29 points lower to 1,219.72 points, marking its lowest in 11 years, on the back of lower oil prices and Covid-19.
However, the FBM KLCI charted a major rebound yesterday, closing at 6.85% or 83.56 points higher to 1,303.28 points, as investor sentiment was shored up by central banks’ measures to cushion the fallout from the Covid-19 pandemic.
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