Frankly Speaking: Signs of a frothy market?

This article first appeared in The Edge Malaysia Weekly, on August 10, 2020 - August 16, 2020.
Frankly Speaking: Signs of a frothy market?
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Amid the current stock market rally, any bit of news or rumour — particularly pandering to investors’ love for anything related to a potential Covid-19 pandemic fix — could move the dial on share prices.

And some investors scoop up shares of these speculative plays without verifying the authenticity of the news, and with no regard to the companies’ financial metrics or the quality of their business plans.

Last week, glove maker Kossan Rubber Industries Bhd, Green Ocean Corp Bhd and AT Systematization Bhd denied rumours that they were forming a glove-making partnership. Kossan shares were up 361% year to date as at Friday’s close, while Green Ocean and AT Systematization had gained 274% and 175% respectively in that same period.

According to reports, loss-making Green Ocean recently incorporated a wholly-owned subsidiary, G Rubber Sdn Bhd, to carry out the manufacturing and trading of gloves. It also saw the emergence of a new substantial shareholder in Mak Siew Wei, with a 17.07% stake in the company, in July.

Mak is also executive director and a substantial shareholder of loss-making AT Systematization, with a 23.4% stake as at May 21, 2020. In June, AT Systematization, which specialises in industrial automation systems, announced that it intended to buy an industrial glove maker, although the deal had not been sealed yet.

Will these deals pan out?

Also, during the week, an unusually high number of stocks — close to 20 at last count — hit their upper trading limits. When this happens to a counter for two consecutive days, trading of its shares will “freeze” at a fixed price.

Are these all signs of a frothy market as investors — or rather, speculators — try to make hay while the sun shines?

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