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One year on, closure remains elusive for penny stock saga (Amended)
OCTOBER 2013. A sudden, epic fall in three penny stocks - Asiasons Capital, Blumont Group and LionGold Corp - which had previously logged dizzy highs stunned the market and lopped off billions of dollars in market value, setting off a series of unprecedented events in the local bourse.
One year later, the market has yet to recover from the assault and investors are still befuddled over the event and its actual triggers (and culprits), while these firms continue to reel from the backlash of crushed credibility.
"There is no point commenting on the past. We are victims of the entire share controversy," says a key executive of one of the firms bitterly, when asked to comment on how tough the past year has been to get business back on track.
These three counters, which had scaled unfathomable highs, have since been served a big dollop of reality check. Asiasons is hovering at humbling levels of 3.4 Singapore cents from last October's spectacular high of S$2.83. Shares of Blumont and LionGold carry a similar tale, hobbling at 3.1 Singapore cents and 4.1 Singapore cents on Wednesday from peaks of S$2.45 and S$1.725 respectively last year.
The fallout had reverberated to a wider band of penny stocks, most of them connected through a tangled web of common shareholders or directors. The penny stock rout on the fateful morning of Oct 4, which wiped out S$5 billion in market value in the three counters within the first hour of trading, had led Singapore Exchange (SGX) to suspend trading in the counters; it later slapped a two-week trading curb on them which some say had exacerbated the losses.
For that, SGX has drawn some flak. "As we all know, the market always finds its equilibrium after its price discovery phase," says an investor. "But now, how would we ever know if these bunch of penny stocks could be really worth their billions today if they were given the opportunity to execute their plans without such arbitrary enforcement?" he asks. On the other hand, SGX was also taken to task for not being swift-footed enough to avert the stock rout.
Since then, the firms have been hit by a slew of board resignations, with many of the big deals which prompted investors to pile on the stocks having flopped, while some others hang on a limb. The meltdown has also triggered a litany of lawsuits by broking firms and banks against those connected to some of the firms.
Closure on this bloody episode is elusive as a sweeping probe by Singapore's Commercial Affairs Department involving eight firms - Asiasons is not one of them - and 13 individuals, many of whom are top executives, for alleged false trading and market rigging has yet to bear an outcome.
"There is no closure as long as investors don't know if any offence was committed or was it just sheer euphoria or market rigging or whether the SGX's moves had caused the collapse.
"So, the charging of some individuals may be a starting point to recover investor confidence," says an astute market participant.
But a seven-month probe that hasn't turned up an outcome may be easy to appreciate given the complexities of such investigations. Professor Mak Yuen Teen of the National University of Singapore concurs: "To be fair, the investigations may be complicated and need to be thorough to ensure that sufficient evidence is gathered for a strong case - if there is indeed wrongdoing."
While the saga remains an open wound, the larger market has also been afflicted, this more so in the controversial corner of the low-priced stocks except for sporadic blips when the lights come back on the penny stock arcade.
Traders are less enamoured by these stocks, with the average value per traded share having doubled from 29 Singapore cents a year ago to 57 Singapore cents last month.
Trading volume since the event has dwindled from a daily average of over five billion shares in September last year (one month prior to the collapse) to a paltry 1.68 billion shares in September 2014. Trading value over the period has fallen by over a third.
"SGX is a moribund market waiting for CPR," laments a stock investor. A tad too harsh maybe, but the remark encapsulates SGX's under-performance compared to many regional peers.
It is perhaps most telling that brokers are now branching out to other asset classes such as bonds and foreign exchange while increasingly, investors are ditching Singapore-listed stocks for stocks in Hong Kong and the United States.
"With Singapore being so connected IT-wise, there is really little need to be dealing with SGX or its members. We can trade off any smartphones, anywhere, anytime," he adds.
When compared with past shockers, namely the Pan Electric debacle in 1985 where many investors and brokers from both sides of the Causeway were hammered with hefty losses, the impact of the October saga appears less far reaching.
According to market sources, investors of merely some 3,000 CDP (Central Depository) accounts had suffered realised losses following the saga where some S$8 billion was cleaned out of the market in just under a week. This, they say, indicates that the event had posed no real systemic risk.
Some brokers were hit but here too, the losses do not appear to be ground-shifting. The Monetary Authority of Singapore, which was keeping a hawkeye on broking firms' exposure to the battered counters, had said last year that their operation and financial positions remained sound.
One of the hardest hit could be Singapore brokerage AmFraser Securities but its exposure, at S$47 million, was far less than what the market had anticipated.
Yet, last month's announcement that Taiwanese brokerage KGI Group is buying AmFraser for about S$38 million has led some observers to wonder if the losses were one of the factors that had instigated an ownership change. "Firms get hurt but there are opportunities and this may be one example," said an analyst.
For sure, there are lessons to be learnt. "Regulators need to be more vigilant about certain individuals and interrelationships among individuals when they take up significant positions in companies," says Prof Mak.
According to a remisier, retail investors are also no longer scrambling to chase penny stocks to such lofty levels as witnessed in the case of these three firms last year, which means "there is some good that emerged from the situation".
The penny stock crash led to big changes in Singapore's securities trading landscape and tighter enforcement. Many of the measures were already on the cards but the bruising episode had hastened their implementation with the aim to soothe battered market sentiments.
But many wonder if these measures, when push comes to shove, will be able to quell a repeat of the crushing event.
"Most of these measures help when the market is rational. But they matter less when the market is in irrational mode which is when a great deal of punting takes place," says an analyst.
In an earlier version of the graphic attached to this story, we wrongly listed Peter Chen Hing Woon as the director of business and corporate development at Blumont Group. He is the director of business and corporate development at LionGold Corp. The attached graphic has been amended to reflect his correct designation.