Highlight Bursa chief: Exercise caution

by **Cals** Tue 26 Aug 2014, 09:53

Highlight Bursa chief: Exercise caution

Business & Markets 2014

Written by Yen Ne Foo & Liew Jia Teng

Tuesday, 26 August 2014 08:59

KUALA LUMPUR: It was a sea of red on the local bourse yesterday, with losers outpacing gainers by two-to-one as Bursa Malaysia Bhd chief executive officer Datuk Tajuddin Atan warned retail investors to exercise caution and “self discipline” after the market frenzy last week.

“As much as we as a regulator want to monitor and manage the market, retailers should understand that after [the stock rises beyond] a certain level of fundamentals, they should exercise caution ... there should be self-discipline.

“While we would like to see more retail participation on Bursa, we would also like to have an orderly market,” Tajuddin told reporters during Bursa Malaysia’s prize giving for its capital market-linked football game FANTASY FTBL.TRADR Challenge.

The local bourse’s chief nevertheless said the penny stock excitement is currently “not out of control” and that Bursa has the mechanisms of check and balance to monitor price levels and trading volume of all stocks on the local exchange.

Penny stocks on Bursa saw a major sell-down yesterday — the T+3 settlement date after last Wednesday’s market frenzy that recorded an all time high traded volume of 7.67 billion shares in a single day.

After the closing bell, the FBM Small Cap Index dropped 156.88 points or 0.82% to close at 18,910.34 points. The decline in the small-cap index has also reflected weak sentiment across the board where 637 counters finished the day in the red while only 276 finished the day higher, with 296 counters unchanged.

Meanwhile, the benchmark FBM KLCI was also down 8.68 points to 1,862.31 points, with the total market trading volume decreased to about 3 billion shares worth RM1.98 billion, compared with 3.31 billion shares worth RM2.26 billion last Friday.

Among the small-cap stocks which fell the most were Hubline Bhd which plunged 9.1% to 5 sen, GPA Holdings Bhd which fell 6.2% to 15 sen, as well as Sumatec Resources Bhd and EA Holdings Bhd which both ended 5.9% lower to 47.5 sen and 16 sen, respectively.

Other actively traded penny stocks included PDZ Holdings Bhd, Globaltec Formation Bhd, Luster Industries Bhd, Talam Transform Bhd, Nexgram Holdings Bhd and Marco Holdings Bhd, which also saw their share prices closing lower yesterday.

However, software developer IFCA MSC Bhd was one of the handful of penny stocks that closed significantly higher yesterday, gaining 8.5 sen or 32.1% to 35 sen, with about 138.88 million shares traded. The newfound interest in the stock was believed to be due to its stellar first half result that had showed a turnaround in profitability.

In the past few weeks, Bursa Malaysia has seen growing interest in stocks with market capitalisation of between RM150 million to RM300 million. Some of the popular counters in play most recently were Sumatec, PDZ, Marco and Globaltec. Last Wednesday, these four counters together racked up close to 2.6 billion shares in traded volume, or a third of the entire local bourse’s trading volume of 7.67 billion shares.

It is worth noting that any shares transacted last Wednesday must be settled yesterday, three business days after the trade was executed. On this, JF Apex Securities Bhd head of research Lee Chung Cheng told The Edge Financial Daily that the sell-down yesterday was within expectation as a particular brokerage, which he declined to name, has imposed trading restrictions on the financing of certain penny stocks.

“It was reported that some stocks are now restricted from being traded using margin facilities, while some are subjected to price caps for margin financing. Traders and speculators need to cover their positions for last Wednesday and the T+3 fell on Monday (yesterday). The selling pressure triggered the pull down of penny stocks,” he explained.

Areca Capital Sdn Bhd CEO Danny Wong Teck Meng said while there are small capitalised companies that are backed by sound fundamentals, the trading of a large number of penny stocks are still speculative in nature. Hence, investors are advised to study each stock before investing and should be cautious on short-term trading.

“I would not advise investors to buy stocks on hearsay basis. It is merely betting on luck if buying stocks for just T+3 to make gains,” he said.

Wong explained that everytime the market’s trading volume surged to unsually high level driven by speculative activities on penny stocks, selling pressure would soon follow once the so-called syndicate buyers exited their shares. “This usually happens as huge volumes enable syndicates to clear their holdings,” he said.

Tajuddin had said that the recent activity highlighted the need for retail investors to be educated, informed and guided about the rewards and pitfalls of investing in the capital markets.

Indeed, Bursa Malaysia has been hoping to increase retailers’ confidence in the local stock market and hence raise their level of participation vis a vis local and foreign institutions, although this effort is sometimes marred by speculative trades on penny stocks that have deterred newcomers from entering the market.

This article first appeared in The Edge Financial Daily, on August 26, 2014.