KUALA LUMPUR: No systemic risk is expected to spread to the wider market following the recent selldown in several small-capitalised stocks on Bursa Malaysia.
After the dust had settled from the whirlwind market movements last week, which took many by surprise, market sources said the selldown was first triggered following actions by a financial institution to revoke financing lines for an influential market participant.
This had subsequently cascaded into a domino effect upon other similar small-capitalised stocks which had also hit their daily limit down, especially towards the end of the previous trading week.
“It appears to be a speculative buy up and the reverse has happened now.
“Notably, many of these were small stocks with frothy valuations and no new fundamental developments to justify a rise in their share prices,” said an analyst.
A selldown in stocks that were mainly linked to Datuk Dr Yu Kuan Chon had begun since mid-December 2023 and this had culminated into bigger and heavier losses as January 2024 beckoned.
Yu is a substantial shareholder in YNH Property Bhd
, Rapid Synergy Bhd and IMASPRO Corp Bhd.
Last Friday also saw other stocks such as Sarawak Consolidated Industries Bhd (SCIB), Jentayu Sustainables Bhd and Tanco Holdings Bhd having their intraday short-selling (IDSS) being suspended following another day of sharp selling in their share price.
As of yesterday’s trade, some of these stocks, such as Rapid Synergy and YNH, continued to fall while others including SCIB and Tanco had seen a recovery on active trading.
“Perhaps some are entering into these stocks again as the dust settles and the outlook becomes clearer,” said a dealer.
According to UOB Kay Hian (UOBKH) Research, the previous trading week saw multiple limit-downs of many perceived “warehoused” stocks, which are typically speculative stocks that are not institutionally owned.
“This precipitated a 12.6% fall in the ACE Index. Over RM10bil of market capitalisation was collectively wiped out among last week’s mass meltdown, which came a week after the limit-downs of three stocks which were linked to the YNH Group – Imaspro Corp, Rapid Synergy and YNH,” UOBKH Research said.
“While the domino effect may still spread to other perceived ‘warehoused’ stocks in the coming weeks, we reckon that the effect could taper off by this week,” it added.
The research house noted that such a domino effect was not expected to create a significant systemic risk to the banking and financial system, nor dry up trading liquidity in the equity market, given banks’ minor exposure to margin financing.
It estimates margin financing was at less than 2% of the total banking system loans, with 50% of loans for purchase of securities or 3.8% of system loans that also comprise unit trust loan financing.
Meanwhile UOBKH Research pointed out that there may be buying opportunities in fundamentally appealing stocks that were sold down recently.
“Only a handful of stocks under UOBKH Research’s coverage were significantly sold down in synchrony with last week’s meltdown, with three stocks under coverage falling by over 10%.
“We foresee trading opportunities for notable sold-down stocks for last week, particularly for Ekovest Bhd, Dialog Group Bhd and SKP Resources Bhd,” it said.
