More investors shun penny stocks
By Yvonne Chan
POSTED: 31 Oct 2013 22:31
Analysts said investors are shunning this particular market segment after the recent fiasco involving penny stocks.
SINGAPORE: Investor confidence in penny stocks has taken quite a beating. The Singapore Exchange (SGX) junior board, the Catalist Index, has fallen 17.5 per cent since September following the sharp drop in the share prices of some penny stocks. In comparison, the market’s benchmark Straits Times Index (STI) has gained six per cent over the same period. Analysts said investors are shunning this particular market segment after the recent fiasco involving penny stocks. Three penny stocks Asiasons, Blumont and LionGold were suspended by the SGX on October 4 after sharp declines in their stock prices erased S$8.6 billion in market value over three days. They were later allowed to resume trading as “designated securities”. However, when shares of Sky One Holdings plunged as much as 91 per cent on October 28, SGX did not confer the same ruling on Sky One Holdings. Analysts said investors are likely to remain jittery until SGX releases information about its investigation into the previously suspended stocks. “Even though SGX came up with certain explanations, there’s no exact description as to what is called fair orderly transparent trade,” said Ng Kian Teck, analyst at Voyage Research. Daryl Liew, head of Portfolio Management at Reyl Singapore, said SGX faces a delicate balancing act. “On one hand, the SGX has a duty to let the free markets move. On the other hand, there’s an expectation that they need to protect investors as well,” he explained. As for measures to reduce speculation in penny stocks, Mr Ng argued that making it mandatory for small cap companies to increase their free float wouldn’t work. He said: “You cannot ask a company to issue shares for the sake of issuing shares because if the company doesn’t need the money, it defeats the purpose. “It’s an intervention and it would not be as fair, and to the owners, they might not really want to divest in the first place. You’d be forcing them and this would deter people from coming to the exchange.”And as to whether penny stocks would be sullied with a reputation similar to the S-chips saga in the past, Mr Liew thought otherwise. He said: “While there have always been cases of suspicious behaviour or trading pertaining to penny stocks, my sense is that it won’t follow in the footsteps of S-chips. “If you look at the trading habits of investors in penny stocks, they just like the speculative nature. You can’t curb them over the long term.” Analysts said there will still be room for penny stocks among retail investors and speculators.
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