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Curbs on margin financing of certain stocks in M'sia

Publication Date : 22-08-2014

 

At least one brokerage in town has imposed restrictions on the financing of a handful of stocks with the view of taking prudent measures due to the unusually high trading volumes and rise in stock prices.

The firm, one of the largest standalone brokerages in the country, has circulated internally a document identifying three stocks that cannot be traded using margin facilities, and another three that would be subjected to price caps for margin financing.

“The measures are internal risk-mitigating procedures in view of the sharp rise in the prices and volumes of some stocks,” said an official close to the brokerage.

Other brokerage firms have also imposed similar internal controls for the financing of certain shares, but this is the first to document the measure.

The stocks classified as non-marginable are Luster Industries Bhd, Asia Media Group Bhd and Bio Osmo Bhd, which effectively means that these shares cannot be pledged for financing purposes.

Additionally, there is a 50 per cent price cap on PDZ Holdings Bhd, Marco Holdings Bhd and GPA Holdings Bhd.

Based on the closing price of PDZ of 36 sen yesterday, for example, the value ascribed is 50 per cent or 18 sen. Margin financing is normally given at 50 per cent of the value ascribed, and so, in this case, it would be about nine sen per share.

Coincidentally, all three stocks – PDZ, Marco and GPA – are linked to low-profile tycoon Robert Tan Hua Choon, who is in the midst of unlocking value in all of his listed companies.

Tan had sold a 29 per cent stake in PDZ to Pelaburan Mara Bhd about two months ago and speculation is rife that he will also embark on corporate exercises related to Marco and GPA.

Dealers, meanwhile, said such restrictions showed that there was a cautious sentiment in the air amid the current penny stock euphoria that had been sweeping through Bursa Malaysia, pushing trading volumes to levels never seen before.

Some of these stocks have shot up and down in a matter of days, leaving many retailers with burnt fingers.

“Many of these stocks are over-bought and are still rising without any solid reason,” said a dealer.

Based on calls to several other brokerages, it would appear that the majority of firms, however, are still adopting a wait-and-see attitude.

Head of equity markets (dealing) at MIDF Kamal Bahrin Zulkifli said the brokerage had not imposed any trading restrictions.

“We have minimum exposure to penny stocks, but are monitoring the situation,” he told StarBiz.

A representative from a Penang-based brokerage also said there had been no curbs on trading as yet. “We have, however, told our people to be careful.”

Heavily traded PDZ, which extended Monday’s double-digit percentage gains to reach 37.5 sen on Tuesday, plunged eight sen, or some 21 per cent, to 29.5 sen the following day.

At yesterday’s close, the stock, which continued to dominate the trading-volume list as in recent days, ended 6.5 sen higher to 36 sen.

Sumatec Resources Bhd, the other most-traded stock in recent days, yesterday received an unusual market activity query from Bursa, following the sharp hike in its recent trading volume.

The stock, which topped yesterday’s volume list with 335 million shares changing hands, ended eight sen higher to 52 sen after a steep fall of 28 per cent a day earlier.

Retailers have been snapping up penny stocks lately, buying mostly on speculative talk, which has pushed shares to multi-year highs.

This is reflected in the FTSE Bursa Malaysia Small Cap Index, which is up 6 per cent over the last couple of months against the benchmark FTSE Bursa Malaysia KL Composite Index (FBM KLCI), which is lower in the same period.

“The interest in penny stocks at the moment remains strong. If this momentum can be sustained, then more gains can be expected,” said the dealer. He cautioned, however, that excessive speculation would “puncture” the momentum.

Trading volume yesterday shrank to just slightly below three billion shares against a volume of more than five billion shares on Tuesday and over seven billion on Wednesday.

At the close, the FBM KLCI was down 0.22 per cent to 1,874.81 points.

 

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