KARACHI: The recent unsavory happenings at Pakistan’s equity market provide further evidence that the local bourse is not for investors with small means.
The two latest casualties are shareholders of Dewan Cement Ltd (DCL) and WorldCall Telecom.
Let’s first consider the case of the beleaguered cement stock. On Jan 26, the Pakistan Stock Exchange (PSX) warned DCL through a public announcement that it would be consigned to the “defaulters’ counter” from Jan 29, and trading in the stock would be suspended after subsequent procedure.
Since the suspension of a scrip means that the exit doors are virtually closed, trapping the unsuspecting shareholders, nervous investors threw away the DCL stock which saw its price spiral down to its lower circuit — the permissible decrease of five per cent in a share value during a single trading day.
However, the same day (i.e. Jan 29) a stay order from a court compelled the PSX to transfer back the stock from defaulters to the regular counter. The share shot back from the lower to the upper circuit.
On Wednesday, a notice by a buyer announcing its intention to purchase the majority stake in DCL was released. And even before the intention of such an offer was made public, the stock had already hit two more upper circuits. In three trading days, the share price of DCL rose by Rs3 on Wednesday to close at Rs26 — the highest price in eight months.
To protect the small investors, there is an urgent need to open up a risk-alert counter where companies failing to comply with regulations should be placed
Giving the benefit of doubt, the sequence of events in DCL could have been construed as coincidences, but in the last four to six months the events have followed the same pattern in numerous shares: the PSX issues a notice of pushing a stock from regular to defaulters’ counter with the eventual threat of suspension.
A stay order comes and the stock climbs back on the regular counter. And investors keep turning their heads back and forth as if watching a game of tennis.
It is noteworthy that DCL on most days is the volume leader among all traded shares at the PSX, with over 10 million shares changing hands in a single day.
Only Jan 30, WorldCall Telecom was served a notice that it was placed on the defaulters’ counter. The stock plunged to hit its lower circuit and, among the 366 active stocks that day, was the volume leader with trading in as many as 35m shares.
On Wednesday evening, reliable reports indicated that a stay order was secured from a court after the close of trading time.
This is how small investors in WorldCall have been robbed of their hard-earned savings by well-planned deceit. The unsuspecting petty retail investors are the losers, but who are the gainers?
It is for the apex regulator to catch the culprits. Stockbrokers, company officials, analysts and insiders in regulatory bodies could all or singly be engineering plans to profit at the expense of retail investors. The regulator has only to identify those who treated equity traders to sumptuous dinner in a five-star hotel where the virtues of WorldCall were ingrained in their minds with suggestions to sell the stock to clients two days before the notice of the scrip’s transfer to defaulters’ counter surfaced.
Incidentally, the kind of fraud detailed above is perpetrated almost always in penny stocks in which millions of shares change hands daily. The change of price by even a single rupee on such huge volumes must mean fortunes for the perpetrators.
When the bourse announces the suspension of a company, it leaves in its wake a trail of clueless investors who have been cheated. Rules have been bent to achieve the goals.
At times, a stock is pushed to the defaulters’ counter, which puts pressure on its price. After that the share is moved back to the regular counter on some pretext so that investors not in the knowledge of what might come next fall over one another to be the first to buy which propels the share price sky high. The stock is then directly suspended without even a single day’s placement on the defaulters’ counter, trapping investors in that stock and wiping out all their investment.