Offloading in penny stocks
The stock market by the middle of April witnessed a sharp rise in small stocks (or penny stocks with the market price of less than 30,000 dong per share and low market capitalisation). However, during final sessions of April, the stock market saw selling up of penny stocks.
Observers said that most small stocks rose in price in mid-March to mid May 4, 2010. The reason for increasing prices did not come from effective business results, but it was mainly based on information leakage such as high bonus payment and surging profits. For example, from March 15 to April 2, despite the stock market was up or down, MCV shares (Cavico Vietnam Construction and Mining Corp) saw a consecutive gain of 41 percent and PVA shares (Nghe An Petroleum Construction Co) also recorded a straight gain of 45.4 percent.
The price of SEC-coded shares of Gia Lai Sugarcane and Thermo Power Joint Stock Co also jumped to 34,000 dong per share (on April 29), up 50 percent against the price of April 2 at 23,000 dong per share thanks to an unofficial information that in Q1, 2010, SEC earned 40 billion dong of profit despite of its chartered capital was at only 120 billion dong.
Meanwhile, some enterprises still announced new investment projects without any information to prove the effectiveness of these business plans although they knew that shareholders would not pass these projects.
Others expanded finance investments via buying shares of enterprises in the same sector such as PVA purchased 35 percent stake into 12/9 Petroleum Cement Joint Stock Co without giving profit target.
With much unofficial information along with the increasing impetus of many penny stocks, many investors spent a large amount of capital on small stocks with high price. When price makers jointly closed profit with the floor price, small investors can not exit the market because selling orders with big volume dominated the market.
If a penny stock falls to the floor price for three straight sessions, investors will lose some 21 percent of the share value. In the trading session on April 26, the Hanoi Stock Exchange (HNX) witnessed up to 201 share codes decreasing including 60 falling to the floor price. In following three sessions (on April 27, 28 and 29), penny stocks continued to fall despite HNX Index rising.
It’s easy to see that selling orders for penny stocks are often at low price with big volume. Therefore, when investors want to sell these penny stocks, they will have to rush to sell with lower price, making the price of penny stocks continue to go down. On April 21, when Bao Minh Corp (BMI) announced to offload 500,000 VMG-coded shares of Ba Ria-Vung Tau Service and Trading Joint Stock Co, at the same time, VMG also announced to sell 225,000 fund shares, immediately, the price of VMG shares fell for three consecutive sessions.
Category: Stocks
