'Penny stocks in final leg of CNY rally'

KUALA LUMPUR: The annual Chinese New Year stock market rally will likely fizzle out soon.


"It will be very risky for punters to speculate on penny stocks over the next few days," a stockbroker told Business Times yesterday.

Remisiers noted that punters of penny stocks have been taking profits in the morning trading session since Monday after the strong uptrend last week, but surprisingly staging buying-in in the afternoon.

"While the volatile market is exciting, it can also be very risky if a retail investor is not careful with his trades. The probability of losing money is very high in such conditions," said a remisier.

Yesterday, the FBM Small Cap (FBMSCAP) Index rose 0.36 per cent, or 58.22 points, to 16,290.57, while the FBM ACE Index chalked up 124.5 points to 6,257.11 points, rising in tandem with the key barometer.

The key FTSE Bursa Malaysia KLCI (FBM KLCI) rose by 1.47 points to close at 1,825.64 points, after moving between 1,821.75 and 1,826.73 throughout the day.

A broker said after rising for four straight days, the index will likely digest its cumulative gains of about 37 points, or 2.1 per cent, take a breather and move sideways with a marginal upward bias. It will probably be facing immediate resistance at the 1,825-point barrier.

The bad news is there are signs that some leading penny stocks such as Sona, Sona-WA and Minetec are beginning to lose steam.

Yesterday, Sona was down 1 sen to 53.5 sen, Sona-WA eased two sen to 31.5 sen, while Minetec was lower by one sen to 30.5 sen.

A stockbroker with a large broking house believes there could be a last push tomorrow, but any rise would likely be shortlived and intraday.

"Chasing penny stocks in this scenario would be a bad strategy. It would be more prudent to allow for these penny stocks to undergo a correction phase before accumulating them.

"Given the possible pullback by retail players, a 'sell on strength' strategy on penny stocks is recommended," said the stockbroker.

An analyst appears to be more bullish, saying that any penny stocks selldown is an opportunity for retail investors to pick good counters, namely profitable companies or firms that have fundamentally sound business model.

"Some indices, such as the FBMSCAP Index, have actually surged past its 50-day moving average line last week and turned bullish. This is why retail investors' participation is at the highest in three months and aggresive retail investors have been buying on weakness," said the analyst.

Among the active counters yesterday, PDZ rose 2.5 sen to 15.5 sen, Iris earned 0.5 sen each to 50 sen, while KNM rose one sen to 75.5 sen, GPA was up 1.5 sen to 11 sen and Frontken added 0.5 sen to 11.5 sen.