Bursa cools off
Volumes drop after warning from exchange and weak US market
PETALING JAYA: A combination of a warning from the regulators on the unsustainable trading activities on Bursa Malaysia, together with a weak performance of the US stock market, saw cautious trading at the local stock exchange.
After four consecutive days of uptrend, the FBM KLCI fell 6.37 points or 0.4% to close at 1,748.3 points. Of significance was the steep drop in trading volumes, which hit a high of 6.01 billion shares on Monday.
Yesterday, the volume traded was 3.16 billion shares, lower than the 4.57 billion shares traded on Tuesday. The value of the stocks traded yesterday was RM2.75bil, a steep dive of more than 16% compared to Tuesday.
Brokers cited a circular to brokerages that Bursa issued late on Tuesday as one of the reasons for the dip in trading on the exchange.
Another reason was the weak overnight performance in US stock markets that caused global equities markets to fall. Wall Street was affected by uncertainties over
President Donald Trump’s economic policies for the US.
Interpacific Research head of research Pong Teng Siew said the circular by Bursa highlighted the tremendous build up in volume over the past few trading days.
“A volume of 6 billion shares in a single day is unsustainable and there was not enough liquidity in the market to keep trading volumes up.
“There is a finite amount of liquidity in the market and it was approaching an end whether you like it or not. The advisory was timely,” Pong said.
“This issue of speculation, probably they did not think that it was something that needed their attention earlier. After all, last year was a rather difficult year for the market.
“There is this issue of using a light regulatory touch and not wanting to over-regulate as there is a fine line between speculation and investment after all,” he added.
Bursa on Tuesday issued a circular to heads of dealing and compliance of stockbroking companies, saying that it discovered certain groups of market participants using social media and Internet trading to carry out manipulative activities, which included “pump and dump” schemes.
According to Bursa, operators of the “pump and dump” schemes usually use social media and would typically begin by spreading false or misleading statements, news or rumours in investor blogs, chat groups such as Telegram, WhatsApp, WeChat, electronic bulletin board postings or online newsletters to entice or recommend unsuspecting investors to buy stocks which are touted as “hot” picks.
This was to facilitate the disposal of the stocks that they had accumulated earlier at higher prices.
Bursa said other methods used to generate interest included order stacking or layering, slicing of orders into small quantities to give an appearance of active trading as well as aggressive buying and selling.
Pong said the circular also signalled that the market was in a speculative phase, adding that such a phase could last longer than expected, given the lull over the past few years.
“These phases can go on for quite some time depending on the mood of investors. Also, some degree of speculative activity helps keep interest alive in the market,” he said.
Pong noted that brokers today are quite mindful of learning from their past experiences and they did not want speculation in the market to run ahead of itself.
“If they lose too much money, they can lose customers as well. And it is for their self-interest to ensure that market moves are sustainable.
“Some dealers that I spoke to were not mindful of the fact that volumes have surged of late,” he said.
Meanwhile, Areca Capital CEO Danny Wong said: “It’s a new way of doing things using the old scheme. This has been happening since the 1990s where the public were sometimes influenced by hearsay to accumulate certain stocks.
“I guess it’s easier to spread ‘buying’ rumours now using social media where many of this irresponsible people can hide behind anonymous identities.
“This also makes it quite hard to curb this cyber scheme method as people now can buy and sell shares themselves using online trading platforms.”
Wong recommended investors to beef up their financial literacy and get proper advice from licenced brokers.
“Look at the fundamentals of the companies such as financial track record and prospects. The investment made should be based on a long-term outlook as opposed to short-term ‘news’ such the issuance of bonus issues or getting contracts.
“I have seen some well-educated professionals who fall into this trap because of greed,” he said.