singapore hotel: Singapore Equity Trading Plummets on Penny-Stock Curbs

The value of equities traded on
Singapore Exchange Ltd. (SGX) sunk to a two-year low last month,

threatening to slow the bourse’s earnings growth, as brokerages

restricted investments in so-called penny stocks after three

commodity companies plunged.

The average value of shares transacted daily on Southeast

Asia’s biggest exchange fell to S$914 million ($728 million) in

November from S$1.3 billion a year earlier, according to data

compiled by Bloomberg. That’s the lowest since December 2011.

Trading sank 36 percent in the past two months after a slump in

Asiasons Capital Ltd., Blumont Group Ltd. and LionGold (LIGO) Corp.

erased $6.9 billion in market value over three days in early

October, the data show.

Singapore’s brokerages are making it harder for clients to

invest in dozens of stocks even after SGX removed restrictions

on trading Blumont (BLUM), LionGold and Asiasons shares. The nation’s

securities regulator is investigating the plunge and all three

companies have said they don’t know what precipitated the

decline. Interactive Brokers Group Inc. (IBKR) and AmFraser Securities

Pte., a unit of Malaysian lender AMMB Holdings Bhd., face

combined potential losses of $105.8 million from providing

margin loans to affected investors, the brokerages said in

separate announcements.

“The trading curbs were done to protect brokers’

interests,” Jimmy Ho, president of the Society of Remisiers in

Singapore, said by telephone. “However, imposing such

restrictions is killing the market. The measures look overdone

and SGX should intervene.”

‘Prudent Intervention’

SGX suspended trading on the three stocks on Oct. 4 then

declared them “designated securities” on Oct. 6, meaning

investors were prohibited from selling unless they held the same

quantity of stock and buyers had to pay in cash. The exchange

removed its curbs from Oct. 21, saying trading had become more

stable.

UOB-Kay Hian Holdings Ltd. (UOBK), Singapore’s largest brokerage

with about 800 brokers, has 53 stocks in its restricted trading

list, including Asiasons, Blumont and LionGold, according to a

document obtained by Bloomberg. Shares on the list cannot be

traded online and upfront cash payments are required for

transactions above S$30,000, according to UOB-Kay Hian. Lim

Tan Securities Pte. has restrictions on 58 stocks, while Maybank

Kim Eng Securities has 26 stocks on its list, documents show.

The FTSE Straits Times Fledgling Index of Singapore’s smallest

listed stocks by market value has 319 members.

“Investor sentiment in Singapore was severely affected by

the collapse of the penny-stock bubble in October,” UOB-Kay

Hian said when it reported its third-quarter results on Nov. 12.

“While our timely and prudent intervention averted significant

bad-debt losses, we expect lower trading volume and hence

brokerage income in the next quarter or two.”

Soar, Plunge

Stock trading remains the biggest source of income for
Singapore Exchange and the slump will curb earnings for the

bourse, according to Macquarie Group Ltd. and Phillip Securities

Pte. SGX shares slid 0.1 percent to S$7.22 at the close in

Singapore.

Blumont, which invests in minerals and energy, had soared

more than 1,000 percent this year through the end of September

to lead gains on the FTSE Straits Times All-Share Index,

prompting the SGX to investigate the surge. The shares plunged

from an all-time closing high of S$2.45 on Sept. 30 to 10.7

Singapore cents today.

Asiasons, the second-best performer on the index, slumped

95 percent from its record close of S$2.83 on Oct. 1 to 13.3

Singapore cents today. LionGold, which said in September it was

in talks to buy as many as three gold mining assets, tumbled 90

percent from its S$1.725 peak on Aug. 29 to 17.6 Singapore cents

today.

Significant Trading

Investors traded about S$1.5 billion of the three

companies’ stock in the month to Oct. 3, the day before the

shares began to tumble, according to data compiled by Bloomberg.

That’s more than the S$1.3 billion of trading in DBS Group

Holdings Ltd., the heaviest-weighted stock on the Singapore

broad-market gauge, the data show.

Blumont, LionGold and Asiasons (ACAP) were ranked 30th, 46th and

48th respectively by weighting in the FTSE Straits Times All-Share Index on Oct. 3, making up a combined 1.6 percent of the

measure.

Trading of the three companies’ shares were suspended by

the Singapore bourse on Oct. 4 to “safeguard the interests of

the markets as there could be circumstances that would result in

the market not being fully informed,” according to a statement

from the SGX at the time.

‘Confidence Affected’

“Market confidence was affected,” said Ken Ang, an

analyst at Phillip Securities. “Some of the retail investors

may have been hit by the recent penny-stock saga, and they may

be slightly more apprehensive about re-entering the market at

this moment.”

SGX is expected to report a 7.3 percent increase in net

income to S$360.4 million in the year ending June 2014,

according to the average estimate of 14 analysts compiled by

Bloomberg. That compares with 15 percent growth in the previous

year. Bourse spokeswoman Loh Wei Ling didn’t respond to an e-mailed request for comment.

“It’s a big deal when the value of stock trading falls,”

said Matthew Smith, an analyst at Macquarie in Kuala Lumpur.

“That’s the primary bread and butter for SGX still.”

An increase in derivatives trading will help the exchange

offset the slump in stock transactions, Smith said.

The equities business accounted for 67 percent of SGX’s

revenue in the year ended June 30, 2013, while derivatives made

up the rest, according to data compiled by Bloomberg. The

Southeast Asian bourse has been seeking to revive equity trading

volume, while at the same time promoting index, currency,

commodity and fixed-income products.

SGX Shares

SGX shares declined 56 percent from a record high of

S$16.40 in October 2007 as the average value of shares traded on

the exchange sank to S$1.4 billion this year from S$2.4 billion

in 2007, according to data compiled by Bloomberg.

While the decline in trading volume is a concern, the

Singapore bourse isn’t inclined to ask brokers to relax their

self-imposed trading restrictions, SGX president Muthukrishnan Ramaswami said.

“Brokers are in the best place to manage their credit

extension to their clients and we don’t interfere in this,”

Ramaswami said on the sidelines of a conference in Singapore on

Nov. 20. “Our brokers are well capitalized and financially

strong.”

Regulators around the world stepped up oversight of capital

markets after the global financial crisis in 2008 and have

evaluated safeguards since the May 2010 plunge, known as the

flash crash, briefly erased about $862 billion from the value of

U.S. equities. The Monetary Authority of Singapore said on Oct.

25 it is reviewing the trading of Blumont, Asiasons and LionGold

shares.

Thorough Review

The Monetary Authority has said it and SGX will conduct a

thorough review of broader market structure and practices.

Blumont had a market capitalization of $416 million at the

end of 2012, according to data compiled by Bloomberg. The value

of its shares peaked at more than $5 billion on Sept. 30, before

crashing to $228 million on Nov. 29. Asiasons’ market value of

$108 million on Nov. 29 compares with a peak of $2.2 billion on

Oct. 1, while LionGold’s declined to $136 million from as much

as $1.25 billion in August.

“Investors have suffered losses and have become somewhat

more risk-averse,” said Liu Jinshu, an analyst at Voyage

Research Pte. “To some extent, liquidity has been withdrawn

from the market.”

To contact the reporter on this story:

Jonathan Burgos in Singapore at

jburgos4@bloomberg.net

To contact the editor responsible for this story:

Sarah McDonald at

smcdonald23@bloomberg.net

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