Penny stock crash takes centrestage

PHOTO: Penny stock crash takes centrestage

A meltdown of the penny segment was the main feature of Monday's trading. This was led by a 91 per cent intraday crash in the shares of logistics firm Sky One and also steep slides in Tritech Group and the three stocks, Asiasons Capital, Blumont and LionGold, that were recently designated by the Singapore Exchange (SGX).

The result was that although the Straits Times Index (STI) finished with a 2.61-point rise to 3,207.85 and spent the entire day in the black, the advance-decline score for the whole market excluding warrants was 124-331 with most of the falls coming in low-priced issues.

Turnover in dollar terms was poor at $892 million. With three billion in unit volume, the average value traded was 30 cents. Of the 20 most actively traded counters, 16 ended lower for the day and all 16 were priced below 30 cents each.

Sky One's collapse started in the morning and drew a query from SGX which was then followed by a company-requested trading halt pending an announcement.

By then, the shares had lost a staggering 43 cents or 91 per cent at an intraday low of four cents in heavy trading of more than 80 million shares, recalling the crashes suffered by the speculative trio named earlier.

Brokers said aggravating the fall was fear that Sky One would also be designated by the exchange, given the close similarity in the way its price fell. Sky One then announced it has no knowledge of reasons to explain the fall. After the halt was lifted in the afternoon, the counter rebounded to 9.2 cents with 390 million traded, still 80 per cent down for the day.

Sky One's fall was followed in the late morning by a sudden plunge in geological and engineering counter Tritech Group. Tritech's shares first fell 25 cents or 52 per cent to an intraday low of 23.5 cents, before it was suspended at the company's request. After it announced it does not know of any reason for the unusual trading in its shares, its stock ended at 36.5 cents for a loss of 12 cents with 10 million traded.

Speculation among brokers was that the pressure must have come from forced selling.

On the external front, the health of the US economy is expected to set the direction of blue chips this week.

In its Global Daily Insight on Monday, ABN Amro said recent US economic data and the government shutdown earlier this month raise question about the country's economic recovery. "Still, the fundamentals for a stronger recovery next year remain firmly in place," said the bank.

"First and foremost, the pace of fiscal consolidation is likely to ease significantly, falling from 1.8 to 0.7 per cent or so. Furthermore, private sector balance sheets are in much better shape, while lending standards have also eased ... we continue to think that we do not have to wait for long before seeing stronger growth rates."

Elsewhere, DBS Group Research said in its US Economics report titled "US Fed: Landlord to 8 million" that the Fed's holdings of US$1.45 billion worth of housing bonds are effectively loans to homeowners and that until the loans are repaid, it's the Fed that owns the homes and not buyers.

"Since 2008, the Fed has purchased 8.1 million homes, it now owns 6.2 per cent of the entire US housing stock," said DBS.

"Every month the Fed buys another 220k homes - enough to house a city of 577,000 people ... But what happens when all this buying gets 'tapered away'? Will home sales still rise? Will housing starts and prices still rise? The textbooks are pretty clear about this: their answer is no."

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