Stock Market Ample of Liquidity =Ample of Fortune?

 

PGLOBE (3611) 

   Stock market---Ample of fortune?

AMPLE liquidity has kept the momentum in the equity market at a reasonable level, allowing retail investors to seek better investment returns in the current low interest rate environment. The key risk to this is inflated share prices, which could lead to huge losses for investors when heavy selling pressure occurs.

By leveraging news flow or the spread of “insider information” through social media, certain investors with deep pockets will find their way to pump up stock prices. But when the party is over, it is usually the retail investors who will eventually bear the brunt of the losses.

Here are the characteristics of stocks that are often more susceptible to manipulative activities.

1. Small-cap/penny stocks

Owing to their low prices, penny stocks — in which retail investors have higher participation — have always been the target of speculative activity. This was more so after the global market rout in March 2020.

For many, it is far easier to make gains on penny stocks or those with low prices. For example, when a stock rises from 10 sen to 20 sen, it has already made a 100% gain, and maybe within a short period of time.

Enthusiasm for penny stocks has sent many counters to multi-year and even all-time highs. Notably, most of these stocks were underpinned by the healthcare-related ventures some of these companies undertook when the pandemic broke out a year ago.

The share price of Inix Technologies Holdings Bhd spiked in August last year, ahead of the appointment of Macau billionaire Wan Kuok Koi as its new chairman. The stock had soared to 89 sen on Aug 11, 2020, from less than 10 sen a month earlier. However, selling pressure swiftly emerged, pushing the share price down to the 30 sen level the following week.

The group’s plans to venture into the glove industry, develop a Covid-19 vaccine and diversify into the durian industry also made the news, sending its share price to 42 sen on Jan 11.

Early last month, Inix announced that it had called off its durian venture as well as its plans to acquire a factory in Sendayan, Negeri Sembilan, that was supposed to be used for its rubber glove business.

Meanwhile, loss-making bus operator Gets Global Bhd’s move to jump onto the glove-making bandwagon made it one of the best-performing stocks last year, with a gain of 1,140% in 2020. The counter’s all-time high of RM4.05 was recorded in mid-November. However, it had lost about half its market value to close at RM2.13 last Thursday.

So far, there has been no update on the company’s diversification into gloves.

Nonetheless, sometimes a rally could be attributed to a “good reason”. The shares of Berjaya Corp Bhd saw strong buying interest recently in response to the changing of the guard at the conglomerate.

The counter had more than doubled to its intraday high of 50.5 sen on April 1 from just 20 sen in mid-March. Nevertheless, it remains to be seen if the share price can be sustained at this level.

2. Low liquidity

Stocks with thin trading volume can be easily pushed up or down if some parties acquire and then dump a huge block of shares.

When buying interest emerged a year ago, office furniture manufacturer Euro Holdings Bhd’s share price got a strong boost and eventually rose more than 17 times to a high of RM5.76 in January — even after the completion of its bonus issue in November last year — from less than RM1 in May 2020. This valued the company at more than RM3 billion.

Euro shares are tightly held by its major shareholder SPA Furniture (M) Sdn Bhd, which has 63.55% equity interest. SPA Furniture has reiterated that it has not traded the company’s shares since early last year.

Financially, Euro swung back into the black by registering a net profit of RM1.6 million for the financial year ended Dec 31, 2020, against a net loss of RM12.74 million the year before. Last month, it proposed another bonus issue exercise on the basis of four bonus shares for every share held.

The stock has already retreated 34% from its peak.

3. Spike in trading volume

For those who rely on chart analysis, a spike in trading volume is one of the indicators that suggest strong buying pressure has emerged. But hang on, it could be a trap. You wouldn’t know that the huge number of transactions may have been undertaken by a particular group of investors.

AT Systematization Bhd, an integrated designer and manufacturer of industrial automation systems and precision engineering solutions, came under the spotlight last June following news of its venture into the glove industry. During the week ended Nov 13, 2020, it saw 10.85 billion of its shares change hands. This represented more than 16% of the total trading volume on the local bourse that week — a scenario that has rarely been seen in recent years.

Nonetheless, the company’s multiple corporate deals have come under scrutiny. Last November, it scrapped plans to acquire industrial glove maker Pearl Glove (M) Sdn Bhd for RM22 million, to focus on building its own glove production capacity in Perak.

The stock reached a high of 25.5 sen on Nov 9 last year before paring its gains to close at 11 sen last Thursday.

4. Financial performance not in line with share price movement

When a stock continues its upward trend without good fundamentals, you should think twice before investing.

Dataprep Holdings Bhd has lost more than 70% of its market value after the stock reached its peak of RM4.13 on March 16 amid weak financial results. Its net loss had widened to RM9.78 million for the financial year ended Dec 31, 2020, from a net loss of RM5.87 million a year earlier.

The fall in Dataprep’s share price came after Bursa Malaysia cautioned investors about trading the stock. It hit limit down last Tuesday, plunging 29.9% or 47 sen to a low of RM1.10, before closing at 90.5 sen last Thursday.

Likewise, Macpie Bhd’s share price has slumped almost 90% from its peak of 85 sen on March 22. The company remained in the red for the six months ended Dec 31, 2020, with a lower net loss of RM1.67 million from a net loss of RM1.98 million in the previous corresponding period.

Last month, the retail and distribution management firm said that together with Techninier Sdn Bhd, it had signed an agreement concerning the deployment of services to eSukan.gg, a government-linked eSports portal.

Ultimately, investors should consider to what extent the company will benefit from the deals announced to gauge whether the response to the share price movement has been exaggerated.

5. UMA

An unusual market activity (UMA) query by the regulator serves as an early warning of speculative activity. It is a tool used by the stock exchange to caution investors about a spike or fall in share price that is not accompanied by any corporate exercise announcements.

A UMA query is issued when a sudden significant fluctuation or trading activity is detected. The company must then make enquiries with its directors, major shareholders and other relevant persons to assess whether there has been any corporate development related to its business that has not been previously announced, such as whether there is any rumour or report concerning the business, or whether the company is aware of any other possible explanations.

A total of 17 companies were queried by Bursa in 1Q2021 compared with 20 in 4Q2020.

When a stock rally is “out of control”, the regulator will advise shareholders to exercise caution. Most of the time, the move has proved to be “effective” in curbing a continued rise in the share price.

In addition to the UMA query and trading alert, Bursa could freeze the share price of a company if its upper limit price or lower limit price is reached on a market day and is followed by another upper limit price or lower limit price.

This year, Seni Jaya Corp Bhd and G3 Global Bhd were among the companies that saw a freeze on their upper limit prices after their stocks hit limit up for two consecutive trading days.

6. A slew of corporate deals

Without doubt, corporate developments draw the attention of the investing fraternity. These also serve as rerating catalysts from a valuation standpoint. But judging from the share price movements of some stocks, some of the corporate announcements may seem too good to be true.

Frozen food processor Saudee Group Bhd’s share price went on a roller-coaster ride after the company announced its expansion plans. The stock surged to an all-time high of RM1.19 on March 23 following news that it would supply frozen meat and products to the Chinese market, including Hong Kong and Macau. However, it had pared all the gains in just two weeks, closing at 30 sen last Thursday.

It is worth noting that Fintech Global Bhd, which has interest in various companies, is the single largest shareholder of Saudee after buying a 21.55% stake from Wide Symbol Sdn Bhd via a direct business transaction in August 2020.

Interestingly, Chin Hin Group Bhd founder Datuk Seri Chiau Beng Teik ceased to be a substantial shareholder of Saudee ahead of the company’s announcement. His equity interest was reduced to 4.9% after a disposal of a 0.12% stake on Feb 8. He emerged as a substantial shareholder of Saudee last November.

In January, Saudee proposed a private placement and a rights issue to raise up to RM101.78 million for the expansion of its production capacity and repayment of borrowings.

Meanwhile, some shareholders of Metronic Bhd, wanting to take advantage of its proposed vaccine venture, could be stuck with a high entry price. The counter swelled to a peak of 20 sen last November, but quickly slumped after the company terminated the deal. This came after it said it would be making a RM180 million profit from its memorandum of agreement with Taiwan’s Medigen Vaccine Biologics Corp.

TheEdge Mon, Apr 19, 2021 02:00pm - 1 week ago