Edge Weekly Penny stocks frenzy

by **Cals** Mon 25 Aug 2014, 03:36

Edge Weekly Penny stocks frenzy

Business & Markets 2014

Written by Asiah Yusof of theedgemalaysia.com

Saturday, 23 August 2014 10:47

(Aug 23): Money follows money and its making a beeline for the stock exchange, snapping up lower liners and pushing Bursa’s volume to record high.

The penny stock euphoria is full on as investors look for new areas to put in their money for good returns.

The phenomenon is not without its perils, yet it offers an exciting chance to make money too on a market displaying good volumes.

The Edge Malaysia Weekly takes an all round look at the trend in its latest issue out today (Aug 23).

Confirming the penny stock frenzy, 65 per cent of the 7.67 billion shares traded last Wednesday when Bursa hit record high were those of companies with market capitalisation of RM150 million to RM300 million.

Last month, retail participation accounted for 48.56% of the 41 billion shares traded.

In comparison, retail investor participation made up only 17% of total value traded in 2012.

Penny stocks have been dominating the top active list in the past months. Every trading day, there are counters with gains of 5% and more on heavy trading volumes.

According to a dealer, present-day traders and retail investors prefer the cheaper stocks (in absolute value) with high volumes.

The blue chips are not their cup of tea, he said.

With penny stocks that have good volumes, a day trader can get in and out very quickly and make some money.

But where there is money to be made, there is every chance of getting burnt as when sentiment suddenly shift for these stocks.

After all, the upward trend of many of these penny stocks is not backed by fundamental earnings growth.

When the music stops, share prices can drop like a rock, says the weekly.

Last Wednesday’s sudden selldown highlighted the fragility of the penny stock rally.

When the shares of Sumatec, PDZ and Marco Holdings Bhd fell in the afternoon session, the trading screen instantly turned red as other counters followed suit.

And while these were happening, the FBM KLCI was virtually unaffected. The benchmark index, in fact, rose six points that day.

The day traders would be the first to react and cut their losses whereas the retailers who are not in front of a screen would not be able to act quickly enough and would be hit harder,? says the dealer.

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Market sentiment was then dented across the board. A market-wide knee-jerk selldown saw the number of losers shot up to over 700 in a matter of minutes, from about 300 in the morning.

The weekly also pointed to the role played by securities firm in the rally, through lenient margin financing or even longer, settlement periods.

But what will happen when they reign in credit lines in the face of an overheating market?

The weekly also delved into the dilemma of the stock exchange that wants to see high velocity churned by active transactions, while holding fast to its duty to curb unhealthy speculation on the bourse.

Like any asset bubble, a stock market crash will pose systemic risk to the economy.

That said, there are gems among the penny stocks that are overlooked.

There is still upside in the currently penny-price stocks that are in the early stages of their revenue

The weekly also reviewed several hot penny stocks including PDZ Holdings, Globaltec Formation, WZ Satu, Seacera Group and Sumatec Resources.

For the full story, The Edge Malaysia Weekly is available at newstands, and on subscription at theedgemalaysia.com
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