OVER the week, an usually high number of stocks with links to healthcare or gold hit their upper-limit thresholds in what many market watchers say is another sign of an increasingly speculative market.
Last Tuesday, Bursa Malaysia froze the share and warrant prices of HLT Global Bhd, Notion VTec Bhd and ES Ceramics Technology Bhd after the securities hit limit up for two consecutive days. On Thursday, it was jeweller Tomei Consolidated Bhd’s turn to go limit up.
The upper-limit prices of Notion shares and Notion-WC were maintained at RM1.44 and RM1.12 respectively, while those of HLT, HLT-WA and ES Ceramics were frozen at RM2.45, RM1.72 and RM1.40 per unit respectively.
Also hitting limit up were UPA Corp Bhd, following its announcement that it was venturing into the manufacture of a key material used in the production of three-ply and surgical face masks; MMAG Holdings Bhd, following the sale of its entire 29.89% stake in MSCM Holdings Bhd (previously known as PanPages Bhd) to Penang’s Hong Seng Group for RM18.09 million cash; and LKL International Bhd, whose share price surged to a record high of RM1.80 last Thursday as personal protective equipment-linked counters continued to attract investor interest.
Others that went limit up included Adventa Bhd, Careplus Group Bhd, Jerasia Capital and JCY International Bhd as well as gold retailer Poh Kong Holdings Bhd.
Pause for consideration
“Generally, stocks hit their upper limit when there is a high participation of uninformed retail investors chasing shares based on hearsay. Often, it’s speculative, although this is not always the case,” Areca Capital Bhd CEO Danny Wong tells The Edge. “Share prices can move fast after a round of selldown or price adjustments, especially with a low base and upon positive news.”
The capping of upper — or lower — limits is, simply, the bourse’s facilitation of its policies to ensure orderly market movement.
Stocks that are trading equal at or more than RM1 per share have upper and lower limit caps of 30% and -30% intraday respectively, while penny stocks trading at less than RM1 per share are capped at an upward limit price of +30 sen and lower limit price of -30 sen.
“It gives investors time to digest the news to make sure the market moves in an orderly manner and ensures interests are protected in an environment of fair practice,” Wong explains. “That pause is crucial for investors to verify news before deciding to buy or sell.”
Peter Lim Tze Cheng, Equities Tracker’s head of research, says: “Whenever Bursa ‘unfreezes’ a stock, its price rallies the next day. These are the challenges of managing stocks in the presence of speculative elements. Technically speaking, capping their share prices is borne of good intention; however, it is admittedly hard to fight speculation.”
In the last few months, amid the global outbreak of Covid-19, companies with plans to diversify into a pandemic-related field have tended to appeal to investors. Such may have been the case with Adventa. The fact that the medical service provider sold its glove business to Aspion Sdn Bhd in 2012 does not seem to matter to investors who have flocked to the counter.
Similarly, as the price of gold rose to over US$2,000 per troy ounce, shares of gold companies have risen in tandem.
However, the uptrend in the shares of some of these companies may not always reflect business performance as speculative elements cloud investors’ judgement.
Wong says: “Pharmaceutical stocks, for instance, may react positively to news of a vaccine but their ability to sustain the run-up price would very much depend on the fundamental valuation. While liquidity may rouse sentiments and boost share prices, the stock’s intrinsic value is what will ultimately overrule all other factors.”
Measures to deal with the economic fallout arising from the lockdown to curb the pandemic have led to ample liquidity in the system, much of which can be attributed to investors channelling cash in their fixed deposits into the stock market. This has led to a spike in share valuations from their historical averages.
“These scenarios are risky. Investors must be aware that a high price-earnings ratio does not necessarily mean those high share prices are sustainable,” Wong warns.
Vincent Lau, vice-president of equity research at Rakuten Trade, says investors are looking down the value chain in search of related stocks. He thinks the current market conditions are vibrant rather than overheated.
“It’s good to see this liveliness as it has been a while. At a glance, retail participation has gone up by 40% from the teens previously, which balances out market diversity and reduces our market’s reliance on institutional and foreign funding,” he adds.