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Bargain Stocks Speculation Frenzy
Malaysia Perspective | 28 December 2011


Despite an external economic climate spooked by the debt crisis in the EU, failed attempt by the US to cut its deficit, and the unrest in the Middle East, as well as an uncertain domestic economic outlook coupled with lacklustre corporate performances and profits, the Malaysian stock market was gripped by a bargain-stock feeding frenzy in November. While the various indices of the Malaysian market were heading south, the FTSE Bursa Malaysia ACE Index ended the month on a high note by achieving a 2.57% rise within one month. The enthusiastic sentiment pushed up the demands and prices of Bargain Stocks Speculation Frenzy some bargain stocks and their warrants simultaneously, chalking up hundreds of million ringgit transacted for both instruments. Thanks to five bargain stocks which broke the hundred million mark in terms of their volume traded, KLSE’s overall volume traded on 14 November rose to a record high of nearly 300 million shares.

On closer scrutiny, this wave of bargain stock speculation can be traced back to Harvest Court Industries [SYM:9342]. When news broke on 28 October that Mohd Nazifuddin, the Prime Minister’s son, had joined its board of directors, Harvest’s shares became the market’s new darling; market speculators immediately jumped on the opportunity to buy up their favourite shares, thus triggering this wave of speculation frenzy. Between 14 October and 11 November, Harvest’s share price had gone from 14.5 sen to RM1.65, a whopping 1038% increase! GPRO Technologies [SYM:0045] came in second with an increase in share prices of 75%. Accordingly, Chinese companies recently made a total investment of RM3.1 billion in Malaysia to buy into several listed Malaysian companies, of which GPRO Technologies was one of them.

Market analysts agree that, in addition to the “news” (of Nazifuddin [35] joining the board of directors) fuelling the speculation frenzy, Chinese funds buying up Malaysian shares in the capital also served as a further stimulant; however, whether the influx of Chinese funds is only a simple act of investment or further fanning the speculation fever may only become obvious in the longrun. As blue-chip stocks are priced out-of-reach for now, retail investors would be lured to punt on bargain stocks that are heavily traded. No doubt, reasonable rises in trading volumes can stimulate investments, but excessive speculative activities would disrupt the market order. This time round, the prices of these stocks were pushed up by strong buying interests in the absence of support from their fundamentals. For this reason, Bursa Malaysia had been closely monitoring the movements of these counters from the beginning. Since early November, it had issued statements of inquiry on the “unusual market activities” (UMA) of six companies. The list includes Hibiscus Petroleum [SYM:5199], Emico Holdings [SYM:9091], Karambunai [SYM:3115], and Maxbiz Corporation [SYM:9733].

With the year coming to an end and the festive fast approaching, the end-November rebound in Malaysia’s stock exchange will carry its momentum into the next month, primarily thanks to whitewashing by fund managers.

Since Bursa Malaysia issued a UMA enquiry to Harvest Court Industries on 4 November, it had since issued another statement urging investors to exercise caution when investing in this company. However, in light of the ferocious wave of speculative fever, Bursa dealt a big blow to both Harvest’s shares and warrants on 16 November by listing them as “designated shares”, resulting in both share instruments sliding till they triggered stop trades on the very day trading for both instruments was resumed. At opening, Harvest Court Industries fell 63 sen, or 29.58%, to RM1.50, while Harvest Court warrant fell 54 sen, or 29.83%, to RM1.27, thus becoming the counters with the largest and second largest fullday decline and leaving many ignorant investors in tears of exasperation.

Usually, once the source of speculation is contained, that would dampen and even halt the speculation frenzy.

However, as both Harvest Court Industries’ shares and warrants continued their downward slide that triggered stop trades for two consecutive days, they bucked the trend on 18 November – its share price rebounded 32 sen, or 30.77%, to RM1.36 cents to trigger the stop trade mechanism with its meteoric surge, while its warrants were up 26 sen by the end of the day, a rise of 29.21% that barely missed the stop trade trigger level. Meanwhile, the speculation fever was still raging and the top spot on the most hotly punted counters list was taken by Tiger Synergy [SYM:7079]. In a bid to put a stop to the mayhem, Nazifuddin suddenly announced his resignation as a nonexecutive director of Harvest Court Industries on 22 November. Once again, its counters slid till they triggered the stop trade mechanism, leaving the retail investors high and dry.

Fortunately, Nazifuddin released a statement to the effect that he will not sell off his 2.2% stake (3,982,000 shares) in Harvest Court Industries; another major shareholder of Harvest Court Industries, Datuk Raymond Chan Boon Siew, also declared that he will not divest his 15.7% stake within the next two to three years. For investors with the holding power for the long-haul, it would seem that at least they will not lose everything; its fundamentals look to be reasonably stable. For those counters that lack the fundamentals and yet appreciate based purely on speculations, investors are advised to stay away from them, even though their prices may fluctuate wildly within a day.

With the year coming to an end and the festive fast approaching, the end-November rebound in Malaysia’s stock exchange will carry its momentum into the next month, primarily thanks to whitewashing by fund managers. In the long run, if external economic situations were to deteriorate, these bargain stocks will inevitably suffer the same fate of price adjustments as blue chip stocks. If any hardy investors still want to ride on this tide, they are thus warned to enter and exit decisively and stay emotionally detached.

It is up to Bursa to decide when and which popular bargain stocks will be put on the “designated shares” list, so investors are advised to learn their lesson from the recent episode so as not to be caught off guard again!

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