Singapore Regulators Reviewing Small-Cap Crash; Tumble in Asiasons, Blumont, LionGold Wiped Out Billions in Market Value

Singapore Regulators Reviewing Small-Cap Crash

Tumble in Asiasons, Blumont, LionGold Wiped Out Billions in Market Value

CHUN HAN WONG

Oct. 24, 2013 12:38 p.m. ET

SINGAPORE—Singapore regulators are reviewing recent volatility in three small-capitalization stocks that saw sharp plunges this month wipe out billions of dollars in market value and months of big gains, the city-state’s central bank said Thursday. Asiasons Capital Ltd. 5ET.SG -10.87% , Blumont Group Ltd. A33.SG -7.50% and LionGoldCorp. A78.SG -11.86% have lost more than eight billion Singapore dollars (US$6.5 billion) in combined market value this month. Their prices tumbled on Oct. 4, sparking a broader selloff in small-cap stocks and prompting Singapore Exchange Ltd. S68.SG 0.00% to briefly suspend the stocks and to ban short selling and margin trading on them for two weeks.The Monetary Authority of Singapore and SGX “are conducting an extensive review of the activities around these stocks,” the central bank said late Thursday in an email response to queries. It declined to elaborate “so as to not undermine potential investigations.”

Analysts and investor-advocacy groups—including the Securities Investors Association of Singapore, or SIAS—have in recent days pressed regulators to investigate trading activities on the three stocks. All of them in recent months had enjoyed substantial share-price run-ups that analysts said didn’t appear to be supported by business fundamentals.

“This episode has also surfaced broader issues regarding the market structure and practices which MAS and SGX intend to review thoroughly,” MAS said without specifying what these issues are. Regulators will “consult the public if changes are required,” it said.

Representatives of Blumont, a Singapore-based resources investor, Asiasons, an investment and asset-management firm, and LionGold, an investor in gold-related businesses, weren’t immediately available to comment.

Prior to their plunges, all three stocks had made dramatic gains that had prompted queries from SGX. Shares of Blumont, which provided sterilization services before making a series of investments in resources from December 2012, had risen more than eightfold in the first nine months of the year, boosting its market value to S$6.3 billion (US$5.1 billion). Asiasons’s share price had jumped nearly threefold over seven sessions from Sept. 9-19, while LionGold’s share price had risen by 55% from mid-July to late August.

Asiasons is LionGold’s single largest shareholder, with an 8.9% stake as of Aug. 20. Blumont and LionGold share an independent non-executive director.

On Oct. 4, when Asiasons, Blumont and LionGold lost a combined S$4.8 billion in market value, the bourse suspended trading on the three stocks for the day. It was the first time in 13 years that SGX suspended stocks to safeguard an “orderly, informed or fair” market.

SGX then imposed on Oct. 7 trading curbs on the three stocks—the first such regulatory action since April 2008—that barred investors from selling these stocks short, buying them on margin—using borrowed money—or conducting so-called contra trades.

In short selling, an investor borrows a security from a broker in order to sell it, hoping to buy it back later at a lower price to repay the broker, with the investor pocketing the price difference. In a contra trade, an investor offsets an earlier share purchase with an equivalent sale before the initial deal is settled; the investor can book profits without committing any capital, as long as the selling price is higher than the purchase price.

Some investor groups, such as SIAS, have questioned the effectiveness of SGX’s regulatory methods and asked the exchange to immediately introduce market “circuit breakers”—measures designed to curb sudden swings in stock prices. SGX said last week it would implement circuit breakers in its securities markets “early next year.”

Market watchers have also raised concerns that the recent crash may have dealt hefty losses to brokerage firms that allowed clients to use credit to invest in the three stocks. The MAS, in its comments Thursday, said it didn’t find much cause for immediate concern after examining the financial position of local brokerages.

“MAS has been closely monitoring the exposure of the broking firms by collecting reports on losses and major counterparty exposure arising from their exposures to the three counters. The operations and financial positions of the broking firms remain sound,” the central bank said.

Asiasons, Blumont and LionGold have trimmed losses since SGX lifted trading curbs on them with effect from Oct. 21, but they remain well off recent highs. Shares in Asiasons are down 92% from their record high reached Sept. 19, while Blumont is down 92% from its high notched on Oct. 1. LionGold is about 83% off its record price in late August.