Time for Bursa Malaysia, SC to tame the ‘animal spirits’

 

The year certainly started off with a bang for Bursa Malaysia with a sell-off hitting a number of small-cap stocks, resulting in some of them plunging precipitously.

Companies hitting limit down multiple times, getting slapped with unusual market activity (UMA) queries, shareholders and investors getting margin calls, and forced selling of shares by banks and stockbrokers were the order of the day.

It was a roller coaster few weeks for these companies as well as investors unfortunate enough to have bought into these counters as they were flying high in the weeks and months leading up to the debacle.

An interesting side note was that a number of these stocks hit their all-time highs or 52-week highs just prior to the selling frenzy – an indication of classic pump and dump operations.

In the case of industrial mould manufacturer Rapid Synergy, the stock hit its 52-week high of RM29.50 on Dec 22 before crashing all the way to RM1.25 on Jan 31, an eye-watering 95.76% drop. It was hovering at the RM16 level a year ago before climbing all the way to RM29.50 by December last year.

However, the Securities Commission Malaysia (SC) and Bursa Malaysia don’t appear too worried about this episode.

“The SC and Bursa Malaysia assure investors that the Malaysian stock market fundamentals remain strong and there should not be any cause for concern,” said the regulators in a joint statement on Jan 19, at the height of the sell-off.

They said the significant decline in share prices is limited to a few small-cap stocks and not widespread. Whether the estimated 20-odd counters affected constitute “a few small-cap stocks” is debatable.

Bursa Malaysia Bhd CEO Muhamad Umar Swift reinforced this point when he said the stock exchange operator has done enough to ensure the market was operating in “an orderly manner” during the recent sell-down.

“Volatility is the life of the secondary market, right? Yes, we do see the changes. We do track it. We are concerned. But it doesn’t pose a systemic threat,” he told reporters after the group’s financial results media briefing on Jan 31.

However, what he said next was a head-scratcher. “There will always be what we would like to call animal spirits in the market. That is what makes the market triumph. The key is to make sure the market is orderly, that there is no misconduct,” he added.

Animal spirits? It almost sounds like Umar is lionising the “animal spirits” that make the market triumph. Try telling that to the investors who lost their pants in the market carnage that saw billions of ringgit wiped off the market cap of the affected companies.

The key question is who are the triumphant winners in all this?

When talking about animal spirits, perhaps Umar is alluding to the psychological and emotional forces that drive investors to make irrational investment decisions in the face of market volatility.

Let’s be clear that while there may be benign animal spirits, there are also dark animal spirits lurking in our exchanges.

Bad actors are usually the ones fanning the animal spirits that inhabit our capital markets. It is the responsibility of the SC and Bursa Malaysia to hunt down these parties without fear or favour, and seek to eliminate this scourge from our markets.

At the same media briefing, Bursa Malaysia chairman Abdul Wahid Omar gave an assurance that the exchange has “active surveillance in place” to ensure compliance with its Listing Requirements.

“The role of an exchange would be to ensure that the market continues to operate in a fair and orderly way, and that remains the case,” he said.

Of course, we have heard such talk before. However, what the investing public wants are not just assurances from market regulators but swift action to take down the dark animal spirits – the market manipulators, the syndicates behind pump and dump schemes, the company officials dishing out misleading information, and the insider traders.

To be fair, the SC has successfully taken action in the past against individuals for various offences.

However, more needs to be done in terms of improving its surveillance system to detect potential offences, reducing the time taken to charge offenders, meting out stiffer penalties, and going after the masterminds of pump and dump schemes rather than the small fry.

In short, the capital market regulators need to redouble their efforts to tame the dark animal spirits that remain a blight on our equity markets. - FMT

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.