Apr 14, 2014

    Penny-stock probe weighs on market

    WHETHER it is taking a bet on Wall Street counters or penny stocks here, traders will probably want to play it safe this week, given the recent volatility in stock markets worldwide.

    On Thursday, there was a sudden sell-off in tech shares in the United States, with the so-called momentum or fast-rising stocks taking the worst hit.

    The rout then spread to the rest of the US market the next day, as banking giant JPMorgan Chase posted worse-than-expected quarterly results.

    Given Wall Street's weak showing, the likelihood is that Asian markets will suffer a knee-jerk sell-off this morning when they re-open for trading.

    As US stocks have hit record highs recently, some traders believe the drop on Wall Street is a healthy correction. But there are also worries that it may herald the start of a more serious pullback of a bull run that is already more than five years old.

    For local traders, however, it is the ongoing weakness in penny stocks that is causing them more grief.

    While local market sentiment has no doubt been affected by Wall Street's dismal performance, some traders also attribute the lacklustre appetite for stocks to the probe into penny-stock trio Asiasons Capital, LionGold Corp and Blumont Group.

    They noted that despite the jitters triggered by US stocks, the blue-chip Straits Times Index is still up 1 per cent so far this year. However, the FTSE ST Catalist Index - which tracks penny counters listed on the Singapore Exchange - is down almost 10 per cent.

    Some dealers said that what worries the market is the scale of investigations by the authorities as they try to unravel the trading irregularities around the trio.

    On Friday, Innopac Holdings said its chief executive and managing director, Mr Wong Chin Yong, has had his passport impounded by white-collar crimebuster Commercial Affairs Department (CAD) as part of the widening probe.

    He joined Magnus Energy Group executive director Koh Teng Kiat and chief financial officer Luke Ho Khee Yong, as well as Annica Holdings chairman and executive director Edwin Sugiarto, all of whom faced a similar fate with their travel documents.

    In addition, Annica had disclosed that Mr Sugiarto is on police bail.

    One observation about the CAD probe is that it appears to be directed at companies which are linked in some way to the stock trio through common directors or shareholders via a tangled web of cross-holdings.

    But the very public manner in which the CAD has been conducting its investigations and the spate of announcements by the affected firms have dampened trading sentiment considerably.

    There was also talk that remisiers were being questioned by the CAD, possibly to get more details on those being investigated.

    One trader noted that while it is good the authorities have put up a show of force to assure the investing public that corporate malfeasance will not be tolerated, the toll on the market is very painful.

    He said: "Each time a listed company puts out an announcement that it is helping CAD with the investigations, the market immediately jumps to the conclusion that something is amiss and causes its share price to plummet.

    "Millions of dollars in market value get destroyed, even though the CAD has still not finalised its probe yet."

    That, in turn, becomes a drag on broader market sentiment, causing trading activities to slow down, he added.