18 counters routed in penny stock fallout

The extent of last month's penny stock carnage on the local bourse is beginning to become clear, with 18 counters losing half their market value or more in October.

At the top of the list of losers are Blumont Group, Asiasons Capital and LionGold Corp - whose well-publicised routs helped spark the losses in the rest.

Other stocks that fell sharply include specialist relocater Chasen Holdings and Sky One Holdings, which provides logistics services in Hong Kong and mainland China.

"It was a domino effect," said remisier Alan Goh. "When such a big event (the losses in Blumont, Asiasons and LionGold) occurs and the losses are there, the same players may have less risk appetite for other penny stocks."

Trading restrictions put in place by many broking houses have also dried up demand for these stocks, chasing away punters looking for a short-term flip.

UOB Kay Hian, Lim & Tan Securities, DMG & Partners Securities, AmFraser Securities and CIMB Securities have all slapped restrictions on some stocks.

These typically force investors to pay cash upfront once their purchases exceed a given level, and ban online share buying.

Such curbs limit the amount of contra trading activity, where traders buy shares without cash upfront and then resell them within three days, pocketing or paying up just the difference rather than the full amount.

"Suddenly, the retail trader has much less access to these penny stocks," said remisier Desmond Leong on these curbs.

"It makes a large difference. You have far fewer buyers, but the sellers may still be there."

Mr Leong also cited the trading curbs imposed last month by the Singapore Exchange on Blumont, Asiasons and LionGold. The trio were made "designated" securities, which disallowed short-selling on the counters and forced buyers of the three stocks to pay cash upfront.

"That led to fear in the market. When these three became designated, it became a real possibility that others may be designated as well."

Some traders also buy shares using margin financing, where banks and brokerages lend huge sums of money, using shares or a smaller sum of cash as collateral.

If one penny stock loses value, it could lead to a margin call - a need for the borrower to top up his collateral - and a trader's other shares may be sold off as well to raise the additional capital, said Mr Leong.

This could explain why drops in one penny stock can lead to falls in other counters.

Blumont, Asiasons and LionGold lost between 87 per cent and 95 per cent last month, booting them out of the billion-dollar market value club.

Sky One Holdings is not far behind, shedding 78.5 per cent to be worth only $31.6 million.

Some shares had been rising sharply before the falls - Blumont and Asiasons more than doubled in September before the collapse.

Asia-Pacific Strategic Investments, offering bereavement services in the region, was worth $49.3 million at end-September, more than five times its value of $8.9 million at end-August. But it then slumped 50.9 per cent to $24.2 million as at Oct 31.

For Rowsley, a real estate developer in Iskandar in Johor, the fall may be due to a technicality. The company had earlier announced a bonus issue of warrants to existing shareholders, which confer the right to subscribe to new shares at a sharp discount.

Its shares slumped 41 per cent on Oct 1, when they started trading without warrant entitlements.

The share price has adjusted downwards for the impact of the new shares, but because they have not been officially issued, its share capital still remains at a smaller number.

This led to Rowsley's market value falling 50.4 per cent last month to $1.19 billion.

The overall Singapore market was worth $913.23 billion as at Oct 31, down 0.4 per cent from $917.17 billion as at Sept 30.

The market was supported by the blue chips, which held up well amid the penny stock falls.

jonkwok@sph.com.sg

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