Is penny stock roller coaster ride over?

PHOTO: Is penny stock roller coaster ride over?

October will long be remembered as the month the music came to a scary halt in the game of musical chairs that had fuelled a dizzying penny stock rally.

For months, easy money coupled with some eye-grabbing corporate moves at many small-cap firms had led investors to pile into these penny stocks.

But early last month, the lucrative run-up came to a screeching halt as a number of penny stocks came crashing down.

The market has been awash with panic since. For many companies, the freefall in their stock prices has led to aborted deals.

Investors who swooped in on these stocks on the promise of sweet gains now face gut-wrenching losses.

The penny stock debacle began on Oct 4 with three stocks - resource firm Blumont Group, private equity company Asiasons Capital and gold miner LionGold.

All three suffered a nail-biting plunge that fateful Friday, wiping out some $5 billion in market value before the Singapore Exchange (SGX) took the rare step of temporarily suspending the counters and then later "designating" them.

But more losses were in store. The spotlight shone by regulators on the three stocks, coupled with trading curbs imposed by broking firms, set off a wave of selling in other penny counters which had also just enjoyed steep rises.

They include Ipco International, Innopac Holdings, Albedo, Rowsley, Magnus Energy and Chasen Holdings, to name a few.

Investors were already on edge and things only got worse when, at the start of this week, out of the blue, logistics firm Sky One plunged over 90 per cent.

Like a contagious disease, other stocks began to see worrying volatility, such as OKH Global, Swee Hong and Tritech Group.

Many stock broking firms were quick to add these stocks to their restricted-trading list, requiring clients to stump up cash upfront to buy the shares.

Fears grew that the SGX may step in with similar trading curbs on a wider set of stocks.

On Wednesday, the SGX tried to calm the market, explaining that not all sharp price movements warrant trading curbs. In the case of Sky One, unlike the battered trio, the exchange said there was "no threat to fair, orderly and transparent trading".

Some critics regard the SGX's actions as arbitrary and piecemeal, but the statement seems to have had some impact as panic selling and wild swings subsided.

In fact, since then these counters appear to have gained some ground. After advancing by 22 per cent on Thursday, Sky One gained 4.3 cents, or 43 per cent, to end yesterday at 14.3 cents.

Asiasons Capital, whose controlling shareholders proposed to inject $25 million by way of a convertible loan facility, also eked out gains of some 2.5 cents, or 15 per cent, to 18.8 cents on Friday.

Blumont rose too, by one cent, or 9 per cent, to 12.7 cents yesterday. It announced that a consortium, of which Blumont is part, had scrapped a A$3.9 million (S$4.6 million) deal to subscribe to 325 million shares in Australia- listed Prospect Resources.

There was more forced selling of insider shares, the latest involving some 551,000 shares from Blumont's executive director James Hong for $71 million on Tuesday.

LionGold jumped 13 per cent to end the week at 22.5 cents.

Even so, no one dares to call it over.

"This could just be a rebound as the stocks are at ebbs not seen in a while. It's too early to say that the market has reached an equilibrium," said a dealer.

anitag@sph.com.sg


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