Frenzied buying of penny stocks

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This article first appeared in The Edge Financial Daily, on August 3, 2016.

 

KUALA LUMPUR: While investment sentiment towards the local stock market remains cautious across the board amid economic uncertainties, there is a notable speculative interest spike in some penny stocks.

The likes of PDZ Holdings Bhd, Naim Indah Corp Bhd, TH Heavy Engineering Bhd, K-Star Sports Ltd, Asia Media Group Bhd and Borneo Aqua Harvest Bhd (Bahvest) are back in the limelight.

Shares in all six companies were heavily traded in the past few weeks, while their share prices went up within a short period of time. The share price rally raised many eyebrows knowing that more often than not the prices of these stocks would usually tumble as fast as they climb.

There could be positive news flows to draw investors’ attention, particularly retail investors. But fundamental-wise, these companies usually have not much to talk about, said a dealer.

For instance, loss-making Asia Media has gained 77% within a month, from nine sen on July 5 to 16 sen yesterday, giving it a market capitalisation of RM38 million.

Naim Indah saw its share price surge by 42% within a week, from seven sen on July 21 to 10 sen last Thursday, bringing it a market capitalisation of RM82 million.

Meanwhile, market capitalisation of K-Star has doubled to RM24 million, thanks to a twofold increase in its share price, from 4.5 sen on July 12 to nine sen yesterday.

After the recent rally, Bahvest is no longer a penny stock after its share price rose from 73 sen on July 11 to RM1.18 last Thursday, an increase of more than 60% in less than three weeks.

Shares in TH Heavy leaped 170% to 23 sen on Monday, up from 8.5 sen on July 21. Year to date, the stock has risen 26% to 21.5 sen, bringing a market capitalisation of RM241 million.

But the penny stock that has supposedly caught the regulator’s attention is PDZ Holdings, which saw its share price climb 64% in two trading days, from seven sen on July 26 to 11.5 sen on July 28. Bursa Malaysia on July 28 issued an unusual market activity query to the firm.

It is also worth noting that PDZ Holdings, Naim Indah, TH Heavy, K-Star, Asia Media and Bahvest saw their trading volumes beginning to pick up since mid-June to the end of last month.

In fact, the volume traded for the six counters yesterday — 187.01 million shares — made up close to 10% of the total trading volume of Bursa, which was about 1.91 billion shares.

It is also noteworthy that shares in  Naim Indah, TH Heavy and K-Star, which saw sudden rises in trading volume since last month, have actually been thinly traded since 2013.

Notably, Naim Indah was one of the counters linked to Datuk Raymond Chan Boon Siew in 2012. The Sabah businessman has a short but notable track record of being the “man with the Midas touch” in the local stock market.

Apart from Naim Indah, Chan also had substantial shareholdings in other penny stocks, including Harvest Court Industries Bhd, which is currently known as Anzo Holdings Bhd, Ariantec Global Bhd, now known as NetX Holdings Bhd, and Metronic Global Bhd.

All these stocks had nerve-racking roller-coaster rides in 2012.

The Edge weekly in its cover story for the week of July 18 to 24, entitled “Riding the penny stock roller coaster”, reported that groups of local sophisticated investors, comprising high-net-worth individuals, had pooled funds amounting to some RM200 million to actively buy into penny stocks in the next few months.

According to sources with local investment banks, of the exclusive investment clubs being formed, one of them is eyeing 20 penny stocks and so far has identified at least three potential target companies.

This development is not unheard of among stockbrokers and veteran investors.