A two-tier market driven by penny stocks
THE phrase "two-tier" has featured prominently in the market and press recently because Keppel Corp's takeover offer for Keppel Land featured two prices. However, the phrase is equally applicable when describing the state of the local market, divided as it is into penny stocks on one hand and blue chips on the other.
What's interesting, however, is that in contrast to almost all of last year when blue chips dominated daily volume and there was no interest at all in pennies, this time it's penny stocks that are leading the way, surpassing their larger capitalised counterparts in the two performance aspects that matter - volume and percentage gains.
According to dealers, the source of the sudden momentum in low-priced issues are proprietary traders who, having been frustrated for many months by the moribund state of the local market and having found their trading stymied by the removal of a cap on clearing fees, are now capitalising on a spillover "feel good" surge in sentiment brought on by massive gains in Hong Kong.
Those gains in turn came about because of a change in rules that allowed mainland China investors to buy Hong Kong stocks via the Shanghai-Hong Kong Stock Connect launched recently. Not only did this trigger an enormous push on Hong Kong stocks, it also gave birth to speculation that perhaps the Singapore Exchange (SGX) might soon be linked with China.
This brings up the week's second feature of note - the resulting run in SGX's shares triggering a rarely seen query from the Monetary Authority of Singapore to SGX on Wednesday, to which the exchange said that it is not in talks for any China link.
SGX's shares fell S$0.14 on Thursday and a further S$0.19 on Friday to S$8.26. This helped to drag the Straits Times Index 6.42 lower on Friday to 3,525.19, reducing its gain for the week to 53 points or about 1.5 per cent.
Other index components in play during the week were the banks and Singtel, while Genting Singapore on Friday made its presence felt in an actives list dominated by penny stocks when it rose S$0.02 to S$1.035 on volume of 38 million.
As for the pennies, there were no surprises really, given that rotational playing of the lowest-priced issues has always been the name of the game when these stocks swing into focus.
So it was that several stocks that saw action during the week slipped out of the actives list as quickly as they entered - Ntegrator, for example, topped the actives list on Thursday when it traded 121.4 million shares but was not in the list at all on Friday.
Among the corporate news of note was an announcement by rail operator SMRT that it may consider bidding for a mobile telecom licence. In response, Nomura said it thinks making money will not be that easy, given the rollout challenges, customer churn issues, and regulatory impediments/spectrum limitations.
"However, the threat of (newcomers') entry and presence can keep a lid on prices (average revenue per user) for the existing operators," said Nomura.
