Mr Vincent Khoo ("Share consolidation is good for retail investors"; Oct 20) asked why I am against share consolidation if it is a neutral exercise.
I disagree with his view that "if penny stock companies consolidate their shares, there will be less churning and punting of their shares".
Some penny stocks are more prone to speculative activities not because of their low price, but because of their lack of institutional demand and low market capitalisation, among other factors. These make them prime targets for manipulation and speculation.
Share consolidation does nothing to change the quality or market capitalisation of a company, and is unlikely to lead to an increase in institutional interest.
After share consolidation, the same company trading at a higher price will still be subject to churning and punting.
When the share prices of Blumont Group, Asiasons Capital and LionGold Corp skyrocketed last year, heavy speculation continued even though their prices had risen far above 20 cents, which is the proposed minimum trading price.
The Small and Middle Capitalisation Companies Association, in its response to the Singapore Exchange's (SGX) proposed adoption of the minimum trading price, said implementing it would not reduce excessive speculation. Instead, it would increase issuers' cost of listing on the SGX and might even confuse shareholders when companies choose to consolidate shares.
Martin Lee
This article was first published on Oct 28, 2014.
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