How long can pennies lead the market?
How long can pennies lead the market?
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R Sivanithy
06 January 2014
It can’t be good for a market with international gateway aspirations to have sub-10 cents stocks not just as its top performers but also as its most popular plays, even if some of the companies concerned recently made exciting announcements to account for the interest in their shares. HanKore, for example, is in a reverse takeover which could see it receive a sizeable injection of water treatment assets from China Everbright Water and so its shares have understandably seen heavy play in the past few weeks. Others in the offshore marine and shipping sector are also enjoying a spot of hectic trading because 2014 is forecast to be a good year for the sector if the global economy does actually recover as is forecast.
However, other than a minority, most of the low-priced issues currently in vogue haven’t actually done or said anything remotely interesting. Neither has their business outlook improved so vastly as to warrant the sudden massive volumes.
They are being churned precisely because they are low-priced. Arguably, that’s not itself a major concern if the punting was accompanied by as fervent interest in higher-quality issues since, then, it would be indicative of a vibrant market that has depth and breadth in its offerings. Unfortunately, this is not the case - as it stands today, it’s pennies or nothing.
The reason for this has been covered extensively in this column - the majority of foreign brokers are recommending that investors avoid Asian stocks and place their money in Western markets instead to leverage on the expected recovery there, even if those markets have already moved sharply in 2013 in anticipation of that recovery. Over in the US, for example, the Dow Jones Industrial Average set 51 all-time highs last year alone, while the S&P 500’s 30 per cent gain over the year (when it rose to 44 all-time highs) was its best showing in 16 years. Still, that’s the situation today - experts say buy the West and, for the most part, avoid the East, which has given rise to the hectic penny punting here.
(The only clear exception to all of this is Japan, which is counted as a “developed market” (DM) that is on the verge of a recovery. So much so that Nomura Equity Research last week forecast the Nikkei, which closed at 16,291 on Friday, reaching 18,000 by year-end and possibly 25,000 in five years.)
Now here’s an interesting question - if the mini-penny rally of the past few weeks is down to traders not having anything else worth punting, then you’d have to ask: “How long can this continue?”
Optimists might argue that half of 2012 and most of 2013 belonged almost exclusively to penny stocks, in which case the answer might be “several months”, assuming, of course, that history repeats itself. Moreover, the local market loves the laggard theme, the logic being that if blue chips and midcaps have been re-rated, then so should the pennies since they have lagged behind.
All this is well and good but as events in October last year have shown, the penny play is almost 100 per cent dependent on sentiment, which could change in the blink of an eye.
One possible obstacle is that if the fever continues to climb, broking firms may impose trading curbs again as they did last October; another is that the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX) are currently investigating the odd circumstances surrounding the trading of Asiasons Capital, Blumont and LionGold and have yet to announce their findings.