Numbers don’t lie: The SGX is a penny stock market
By R SIVANITHY September 1, 2008
MARK Twain once wrote that ‘there are three kinds of lies - lies, damned lies and statistics’. (It was actually former British prime minister Benjamin Disraeli who coined the phrase but it was Twain who popularised the notion that statistics can be used to tell lies).
True, we’ve all seen how numbers can be used to sway an argument (or get clients to buy stocks) even when those arguments may have been flawed to begin with. Unfortunately for the Singapore stock market, there’s no running away from the numbers.
There are 787 listed entities on the Singapore Exchange (SGX), excluding warrants. Of these, a staggering 658 or 84 per cent trade for less that $1 which puts them in the penny category.
It’s a good thing that SGX does not have a rule similar to Nasdaq’s, which is that a company whose shares trade below US$1 for 30 consecutive business days faces the threat of delisting (they are given 90 days grace to ensure compliance, though in times of extreme stress, such as 9/11, the rule can be temporarily suspended).
If SGX had a minimum-price continued listing rule, then more than 80 per cent of the Singapore market would vanish.
Think about this - despite all the attempts by SGX and the authorities to elevate the local market into the realm of the extraordinary, only 16 per cent of the local stock market can justifiably claim to be non-penny stocks.
Of course, you’d have to factor in that we’re in the midst of a bear market, so perhaps some allowances should be made. However, the picture doesn’t get much better even if we lower the penny barrier - if we accept 50 cents as separating penny stocks from non-penny stocks, the proportion of stocks trading for less than 50 cents is still a high 72 per cent.
Finally, if we set the penny hurdle rate at the minimum allowable initial public offer (IPO) price of 20 cents, the percentage of stocks trading for 20 cents or less is still a shockingly high 47 per cent.
Even Mark Twain wouldn’t be able to deny that whichever way you cut it, the SGX is a penny stock market.
The next question an interested party might ask is: what of the much-vaunted China segment which was supposed to drive the market to greater heights?
Here too, the figures are disappointing. There are 50 China stocks that form the FTSE ST China index and only four sell for above $1, which means 92 per cent of SGX-listed China stocks are pennies.
The losses among China stocks are mind-boggling and far exceed the losses sustained on their homeland. Cosco Corp and Yangzijiang Shipbuilding for instance, two components of the Straits Times Index, have lost 70 and 80 per cent respectively in 2008 versus about 55 per cent for the mainland China indices (we’ve assumed that the currencies have remained unchanged).
A ballpark estimate is that the SGX-listed China sector is down at least 80 per cent from their highs, a massive underperformance that only lends weight to the criticism that China companies who choose to list here are mainly - but not entirely - of sub-standard investment grade.
And finally, if STI components have collapsed by so much, why is the STI still down by around 21 per cent for the year?
A few answers are possible. The inclusion of the thinly-traded Jardine companies is one factor - many in the market believe that because the volumes of these stocks are low, the buying support for them is artificial. A second is the resilience shown by the three local banks, SingTel and the conglomerates which have not lost as much ground as the rest of the market.
By logical extension, this implies that the STI is not representative of the broad market, though to debate that point would move us into an area fraught with theoretical and practical difficulties that cannot be sufficiently covered in this column.
Suffice to say that the massive asset deflation the stock market has suffered in the relatively short space of eight months has not been properly captured by many news headlines or market reports. The numbers in this case simply do not lie.
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Numbers don’t lie: The SGX is a penny stock market
By R SIVANITHY
September 1, 2008
MARK Twain once wrote that ‘there are three kinds of lies - lies, damned lies and statistics’. (It was actually former British prime minister Benjamin Disraeli who coined the phrase but it was Twain who popularised the notion that statistics can be used to tell lies).
True, we’ve all seen how numbers can be used to sway an argument (or get clients to buy stocks) even when those arguments may have been flawed to begin with. Unfortunately for the Singapore stock market, there’s no running away from the numbers.
There are 787 listed entities on the Singapore Exchange (SGX), excluding warrants. Of these, a staggering 658 or 84 per cent trade for less that $1 which puts them in the penny category.
It’s a good thing that SGX does not have a rule similar to Nasdaq’s, which is that a company whose shares trade below US$1 for 30 consecutive business days faces the threat of delisting (they are given 90 days grace to ensure compliance, though in times of extreme stress, such as 9/11, the rule can be temporarily suspended).
If SGX had a minimum-price continued listing rule, then more than 80 per cent of the Singapore market would vanish.
Think about this - despite all the attempts by SGX and the authorities to elevate the local market into the realm of the extraordinary, only 16 per cent of the local stock market can justifiably claim to be non-penny stocks.
Of course, you’d have to factor in that we’re in the midst of a bear market, so perhaps some allowances should be made. However, the picture doesn’t get much better even if we lower the penny barrier - if we accept 50 cents as separating penny stocks from non-penny stocks, the proportion of stocks trading for less than 50 cents is still a high 72 per cent.
Finally, if we set the penny hurdle rate at the minimum allowable initial public offer (IPO) price of 20 cents, the percentage of stocks trading for 20 cents or less is still a shockingly high 47 per cent.
Even Mark Twain wouldn’t be able to deny that whichever way you cut it, the SGX is a penny stock market.
The next question an interested party might ask is: what of the much-vaunted China segment which was supposed to drive the market to greater heights?
Here too, the figures are disappointing. There are 50 China stocks that form the FTSE ST China index and only four sell for above $1, which means 92 per cent of SGX-listed China stocks are pennies.
The losses among China stocks are mind-boggling and far exceed the losses sustained on their homeland. Cosco Corp and Yangzijiang Shipbuilding for instance, two components of the Straits Times Index, have lost 70 and 80 per cent respectively in 2008 versus about 55 per cent for the mainland China indices (we’ve assumed that the currencies have remained unchanged).
A ballpark estimate is that the SGX-listed China sector is down at least 80 per cent from their highs, a massive underperformance that only lends weight to the criticism that China companies who choose to list here are mainly - but not entirely - of sub-standard investment grade.
And finally, if STI components have collapsed by so much, why is the STI still down by around 21 per cent for the year?
A few answers are possible. The inclusion of the thinly-traded Jardine companies is one factor - many in the market believe that because the volumes of these stocks are low, the buying support for them is artificial. A second is the resilience shown by the three local banks, SingTel and the conglomerates which have not lost as much ground as the rest of the market.
By logical extension, this implies that the STI is not representative of the broad market, though to debate that point would move us into an area fraught with theoretical and practical difficulties that cannot be sufficiently covered in this column.
Suffice to say that the massive asset deflation the stock market has suffered in the relatively short space of eight months has not been properly captured by many news headlines or market reports. The numbers in this case simply do not lie.
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