The value of equities traded on Singapore Exchange Ltd. 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 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, 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. 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.”
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., 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.”
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.
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 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.
“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 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.
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.”