Retail investors should exercise caution when investing in newly listed stocks, considering the last three listings on the market all saw heavy price movements due to speculative trade, according to the Association of Securities Companies (Asco).
Pattera Dilokrungthirapop, the Asco chairwoman and chief executive officer of DBS Vickers Securities, said there was reason for concern when new stocks jump sharply on the first day of trade only to drop two or three days later.
Such volatility can result in heavy risks and losses for some retail investors who are unable to unload their holdings before prices correct, she said.
"Investors have to consider the risks and whether the valuations are reasonable. If you see a stock rise sharply in price, with a price-to-earnings ratio of, say, 40 or 50 times, then you shouldn't invest," Mrs Pattera said.
"Newly listed stocks priced appropriately will be stable once trading begins, and shouldn't see a sharp decline upon entering the market."
The Stock Exchange of Thailand (SET) is trading at its highest levels since the mid-1990s, with the index up nearly 10% since the beginning of the year and more than 23% over the past six months.
On Friday, the SET announced that stocks singled out for potential speculation can only trade using cash balance accounts for at least six consecutive weeks, double the period stipulated by the previous measure. Cash balance accounts limit investors to trading securities with cash up front, rather than on credit or margin. To date, 44 stocks have been singled out for the measure, compared with 50 stocks for all of 2012.
Mrs Pattera said the cash balance requirement should help curb speculative trading, adding that regulators typically monitor newly listed stocks in the first week before deciding whether to impose trading restrictions.
"I'm quite concerned about the new stocks that have listed on the market, and how share prices jump sharply on the first day despite no fundamental support," she said.
"Investors have to exercise caution and should consider the fundamentals of each stock. If prices are out of line with the fundamentals, you shouldn't invest simply to follow the crowd."
Nives Hemvachirakorn, a well-known value investor, was more blunt, saying that retail investors should avoid initial public offerings altogether.
Stocks which see share prices increase two- or three-fold from their IPO prices can only do so as a result of speculation by investor groups with sufficient capital to sway price trends, he said. Most retail investors are at a clear disadvantage in investing in such stocks.
Mr Nives said investors should remember that the IPO price typically is set near the fundamental value of the stock.
He dismissed the widely held assumption that IPO prices were set at a discount of 20% to 30% from fair value, saying that any new listing had already spent the past several years cleaning up its books and boosting its financial numbers before entering the market.
Companies floating only a small proportion of their total outstanding stock in particular are subject to manipulation by speculators.
Mr Nives said the SET, now priced at a P/E of 19-20 times earnings, was at a "scary level" for any value investor.
"It's quite difficult to invest now I think, since there aren't any stocks priced under their fundamentals and with low risk," he said, adding that he suggested value investors focus on large-cap bellwethers of their industries.
The past month has seen three new listings on the SET: Energy Absolute, Akkie Prakarn and Premier Product.
Energy Absolute, with Finansia Syrus Securities as lead underwriter and APM Asset Management as financial adviser, closed at 7.6 baht on its first day of trade on Jan 30, up more than 38% from its IPO price. On Friday, shares of EA closed at 6.4 baht.
Akkie Prakarn stocks closed at six baht on its first day of trade on Feb 7, or three times its IPO price. As of Friday, the stock traded at 4.64 baht. Country Group Securities was financial adviser and lead underwriter for the listing.
Premier Product, with Finnex Advisory as financial adviser and KGI Securities as lead underwriter, saw its share price close at 12.3 baht on its first day of trade against an IPO price of five baht. On Friday, shares of PPP closed at 9.7 baht.
About the author
- Writer: Nuntawun Polkuamdee
Position: Business Reporter