Penny stock drama likely to hold traders' attention

The sharp and, occasionally, violent gyration in the share prices of Asiasons Capital, Blumont Group and LionGold Corp is likely to keep traders glued to their screens this week.

Last Friday, all three counters plunged by almost one-fifth each, on news that the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) were conducting an extensive review into their trading activities.

Before this, the shares had staged a spectacular recovery - almost doubling in value - after the SGX lifted a ban on contra trading and short-selling on the trio. The exchange had imposed trading curbs on these counters a fortnight earlier when their shares suddenly plunged in price.

For many traders, the wild swing from exuberance back to despair last week may just be too much to handle.

While the SGX had cautioned shareholders and investors to "trade with caution" when it removed the trading curbs, some investors interpreted the lifting of the ban as an all-clear signal and rushed headlong back into the counters again.

But this generated disquiet among the more discerning investors, who want a probe into the cause behind the spectacular crash which has resulted in over $8 billion of stock value being wiped out in a matter of days.

The MAS' comments appear to be the first confirmation that the authorities are not laying the matter to rest, and that they are investigating the circumstances surrounding the meteoric rise of the three counters in the past year and their subsequent rout four weeks ago.

As one reader put it: "Until such an investigation commences, I shall look back with horror that $8 billion can be wiped out just like that in a small stock market like Singapore."

Although the regulators are doing their best to ensure that justice is served, there are many disgruntled investors who are unhappy with the way in which the latest penny stock fiasco is being handled.

One reader, who identified himself as Eugene, wrote: "Why the disclosure now? The regulators had two weeks when the counters were designated to give an indication that they would pursue the case further.

"Now, investors like myself have put money into them (LionGold in my case), believing in good faith that the regulators have restored a normal trading environment, and we find ourselves being hit..."

The fiasco involving the three counters had also led to criticism earlier as to whether the SGX had acted too late to dampen the fervour of retail investors as they were caught up in the heady run-up of the three counters.

This was despite the slew of queries which it had sent out to all the three companies to explain the run-up in their shares, including an unusually detailed one to Blumont just a few days before its share price crashed.

While broking houses' operations and financials remain sound, according to the MAS, this does not mean that everything has returned to normal as far as the three counters are concerned.

The Securities Association of Singapore, which represents broking houses serving retail investors, has noted that a big portion of the trading losses might be residing in the margin accounts opened by traders with private banks who had pledged shares of the three counters as collateral for loans.

In the weeks ahead, these banks may try to recoup some of their losses by force-selling the collateralised shares.

Indeed, this is already happening at Blumont, where insiders have been forced by the banks to sell their shares.

engyeow@sph.com.sg

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