Has SGX acted too late?
Last Friday, the Singapore Exchange (SGX) took the drastic step of cleaning up what had been left smelling in its backyard over the years.
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Angela Tan
08 October 2013
Last Friday, the Singapore Exchange (SGX) took the drastic step of cleaning up what had been left smelling in its backyard over the years.
On Sunday, the local bourse operator allowed trading to resume in three stocks it had suspended trading in, albeit with restrictions against short-selling and taking on new contra positions.
SGX’s unprecedented move to query a clutch of six companies - Asiasons Capital, Blumont Group, LionGold Corp, Innopac Holdings, ISDN Holdings and ISR Capital - last Friday morning and then suspend trading in three of them was largely welcomed by market observers who saw it as a clampdown on irrational stock movements.
The regulator said the temporary suspension in the trading of Asiasons, Blumont and LionGold was “to safeguard the interests of the market as there could be circumstances that would result in the market not fully informed”. The three stocks, which boasted a market value of $9.3 billion before the suspension, have seen their share prices multiply over the past months, a surge investors say was not based on fundamentals.
In the second quarter ended June 30, 2013, product sterilisation and property company Blumont sank to a loss of $22.39 million (due to fair value adjustments of financial assets), from a net profit of $11.90 million a year ago. Net profit for the first six months of 2013 fell 63 per cent to $8.58 million from $23.39 million a year ago. Yet its shares have risen from 30 cents each on Jan 2, 2013, to $2.45 on Sept 30, 2013 - an eight-fold increase over only nine months. In the same period, Blumont’s market value has increased from $508 million to $6.3 billion - a 12.5-fold increase. Even though the company had made various announcements on acquisitions and investments, some were aborted and only small investments were made in others.
In the case of investment firm Asiasons, its net profit for the first quarter ended March 31, 2013, tumbled 89 per cent to $1.76 million. For the second quarter, it recorded a net loss of $3.3 million. Its share price has risen from 81.5 cents on Jan 2, 2013, to a high of $2.91 on Sept 19. That’s up 257 per cent, partly driven by its planned purchase of a 27.5 per cent stake in US oil firm Black Elk energy Offshore Operations LLC for US$171.65 million, payable in new shares.
Gold miner LionGold’s share price rose from $1.095 each in January to a peak of $1.755 on Aug 27. It made a net profit of $2.59 million for the first quarter ended June 30, 2013, compared with a net loss of $5.14 million a year ago. Yesterday, it revealed that it was in “an advanced stage of negotiations” with Minera IRL Ltd, in which LionGold plans to subscribe for up to US$10 million of its shares in two tranches.
Meanwhile, ISR, an investment firm formerly known as Asiasons WFG, engineering company ISDN and investment and telecommunica-tions services firm Innopac, adhered to their boilerplate responses about not being aware of any undisclosed information.
The SGX’s latest action has called a time-out on aggressive short-selling, where traders seek to profit by selling shares they do not own in anticipation that the company’s stock price will fall. Its unusual move has also sparked some nervousness, and the companies emerged one by one to disclose more information about what is going on within them.
The question is whether SGX’s regulatory response may have come a bit too late. The meteoric jump in some of these share prices did not happen overnight but had been evident for some time now among the penny stocks. One need only look at the cottage industry of online stock gurus, whose investment strategy is not based on fundamentals but identifying and shorting these stocks.
One could argue that more could have been done to prevent bubbles from forming in the first place. That would have made it unnecessary to burst them in such dramatic fashion, and spare the market a major upheaval. The concern also is that with the time lag, those responsible for creating the bubbles would have taken their profits already, leaving behind the small-time investors to bleed, as always.
And disclosure can be improved; as a regulator, the SGX must not be content in accepting boilerplate responses from companies. There must be follow-ups where warranted. In a caveat-emptor regime, all queries by the regulator should be made public. Only then can investors be assured of all the information they need to trade on.