Penny stocks still in play despite Harvest Court’s fall

Harvest Court Industries Bhd tumbled 30% on thin trade as trading curbs kicked in yesterday after a one-day suspension, but penny stocks continued to dominate activity on the local bourse. Yesterday’s top 20 most active were penny stocks and 70% of them ended the day with gains.

“With Harvest labelled a designated stock, we expected the wind to be taken out of the sails of other penny stocks. But based on today’s [yesterday’s] trading, that is not the case,” said OSK head of research Chris Eng.

Earlier, there were concerns that investors would drop other penny stocks on fear that trading curbs will be imposed on more counters, given that lower-liners were sold down in May 2006 after Iris Corp Bhd stocks and warrants were declared designated securities following a meteoric rise. Observers say buyers of penny stocks might have been emboldened by the fact that Bursa Securities’ decision on Harvest Court late Monday evening and the similar action on Iris, are more than five years apart.

Sharp price increases were seen in several lower liners, including TMC Life Sciences Bhd, Tricubes Bhd and Compugates Holdings Bhd, which were all among yesterday’s most active counters. Among the three, Tricubes’ share price gains were the highest at 57.6% to 26 sen, followed by TMC Life Sciences’ 19.3% gain to 49.5 sen. Compugates, yesterday’s most active stock with over 79.9 million shares done, gained 6.7% to 8 sen.

Even so, Eng wouldn’t put too much stock in the possibility of any fundamentally-empty stock running for long.

Eng says any selldown in penny stocks in the near future should not impact the broader market.

“There did not appear to be a fundamental reason as to why penny stocks started to rally recently and end-retail investors have not been aggressively trading in these penny stocks. As such, if there is a selldown in penny stocks in the near future, it should not have an effect on the broader market,” Eng said.

While a run-up in penny stocks, had in the past signalled that a market rally is nearing the end of a cycle, experts reckon this may not be the case here.

“In the financial markets, hindsight is always 20:20 [perfect]. There may have been other factors in the past that are not present in the current markets, such as the bull run in the 1990s when speculation was at its peak,” said a local research head. “Since each company operates independently and speculation has cooled down relative to how it was in the 1990s, a fall in penny stocks will probably not cause a selldown in the general market,” he said.

Whatever the case, it remains to be seen if Harvest Court will continue its slide today, after trading between a thin one-sen band of between RM1.49 and RM1.50. Buyers need to make upfront payments when buying designated securities and have a free balance of securities before selling them.

To recap, Harvest Court’s share price had skyrocketed 28 times or 2,740% over seven weeks and gained a whopping RM371.2 million in market capitalisation in the process before the trading curbs were imposed. Yesterday’s 64 sen dip to RM1.49 at the closing bell wiped out RM115.6 million in market cap to RM269.17 million — still a distance from it’s RM13.5 million worth at 7.5 sen apiece on Sept 27.

Interestingly its volume of 724,000 shares yesterday, is now close to the daily activity it saw before volumes spiked to as much as 94.5 million shares, or over half its share base, at one point.


Written by Clint Loh, theedgemalaysia.com