Is SGX killing or cleansing the market?

806
Source
Source
Source

The aggressive way that the SGX descended on certain listed companies the last three weeks raises a very pertinent question: Is the stock exchange of Singapore cleansing the market or killing it?

Three companies – Blumont, Asiasons and LionGold – were hit with lightning speed and declared designated stocks. Inevitably, the stock prices crashed. Like the destruction that was left by the storm that hit Singapore two days ago, the stock market storm left many players with vanishing fortunes..

A host of others — like Mirach Energy, Tritech and Sky One — were questioned on their stock trajectories. Every query was met with a mad rush for the exit by investors. Many have been badly burned,  to say the least. Of course, there were a whole lot of collateral damage. The other penny stocks were white-washed.

The question inevitably beckons: Why the sudden tightening in the SGX regulatory regime?

In the heady days of Singapore-listed China stocks, many of these mainland domiciled stocks went on  dizzy rides, one after another. Sometimes simultaneously. Media queries to the SGX were met with the standard mantra: Caveat emptor or buyer beware.

Needless to say, many have been burned by these China stocks. Just how much CPF money has been lost is anybody’s  guess.

To be sure, the SGX needs to be commended for their belated action. Hey, better late than never. Companies whose shares have run far ahead of their fundamentals better be prepared to explain, or go down into the tunnel for an unruly and wild ride.

So we have ascertained, rightly or wrongly, the SGX desires an orderly market, perhaps as pristine as Singapore roads. No cornered stock, no syndicates running shared operations or company managements ramming stocks for unexplained or unjustified reasons. No more froth, controlled liquidity and ordered, fundamentally driven stock price increases.

But is that what a stock market should be? SGX needs to carefully calibrate what kind of exchange it wants to be. Markets are about liquidity, sometimes excess. There must always be a buzz. Very much like in Hong Kong and Kuala Lumpur. The penny stocks provide the liquidity and the buzz and to a certain extent, the callousness that grip a vibrant market.

Source
Source

If the Singapore market consists of only trusts, reits and blue-chips, the liquidity will run dry except for the periods surrounding the results seasons when portfolio adjustments are made.  Portfolio managers  don’t chase prices, hedge funds thrive on mispricings. Funds keep to target investing. It is the penny stocks that provide the character, the noise and the excitement.

Little doubt, the SGX is in a pickle. How do you provide a vibrant yet orderly market?  Can it be done? Should it be done?

Syndicates have been part of the local market milieu for a long time. They will not go away. They may underground for a while, but they will adapt and return in different guises. Proprietary house trading, remisiers’ churning and market-rumour punting are all part of the game.

All said, the SGX has stumbled upon a new powerful weapon – the gap between market capitalisations and fundamentals. Recalcitrant companies will have a hard time ahead of them.