SINGAPORE—A mini stock bubble is bursting in this normally staid market, pulling down small-company shares despite regulators’ efforts to cushion the decline.
Shares of some small-cap stocks in Singapore have soared in recent months, in some cases nearly tripling in value in just two weeks, even as local brokers tried to keep clients away from them. Then on Friday, three of the hottest stocks fell between 42% and 61%, wiping out about US$4 billion in market value, sending other small-cap stocks tumbling as well.
“What happened to these three companies has weighed on people’s minds, but the general market sentiment has also been weak,” with investors concerned about the U.S. fiscal impasse, said Kelly Teoh, a Singapore-based market strategist at brokerage IG Markets.
Friday, the stock exchange, Singapore Exchange Ltd.,
suspended the three stocks—Blumont Group Ltd.,
Asiasons Capital Ltd.
and LionGold Corp.
—citing concerns that the market that might not be “fully informed” about developments at the firms, its first such action in 13 years. On Sunday, the exchange barred short selling and margin trading in the shares.
But when the market opened Monday, the three stocks tumbled again, falling as much as 92% and pulling down small-cap shares broadly. By the market’s close Monday, the Straits Times Small Cap index had dropped 3.1%, after a 4.1% decline on Friday. The large-cap Straits Times Index, meanwhile, ended flat.
Neither Blumont nor Asiasons responded to requests for comment on Monday. Blumont scheduled a news conference for Tuesday. A LionGold spokesman declined to comment, but referred to earlier responses by the company to SGX queries about movements in its share price.
Unusual trading in “smaller-cap companies isn’t new, but it hasn’t been highlighted in this way before, with three companies being suspended at once,” Ms. Teoh said.
The selloff started Friday. Shares of Blumont, which provides sterilization services for consumer products, food packaging and medical devices, had risen more than eightfold in the first nine months of the year, boosting its market value to S$6.3 billion (US$5.05 billion) from S$508 million. This placed Blumont—which earned just S$4.4 million in revenue all of last year—among Singapore’s top 50 companies by market capitalization.
In a filing to the stock market on Friday, Blumont said it canceled a plan to take over Australian coal miner Cokal Ltd.,
a deal it would have paid for by issuing 72.2 million new shares at S$2.02 each—its closing price Thursday. The company attributed the deal’s collapse to the drop in its share price, which fell to 88 Singapore cents before trading was suspended. On Monday, Blumont’s share price dropped by as much as 87% to 11.5 Singapore cents, before ending at 13 Singapore cents.
Shares of Asiasons, an investment firm, lost as much as 92% of their value to reach 8.5 Singapore cents before ending at 15 Singapore cents. The stock lost 61% on Friday, falling to S$1.04 before it was suspended. LionGold, an investor in gold-related businesses, closed 71% lower at 25 Singapore cents on Monday. It fell 42% on Friday to 87.5 Singapore cents before trading was suspended. Asiasons is LionGold’s largest shareholder, with an 8.9% stake as of Aug. 20.
Friday, the companies responded to SGX queries about their share-price drops. Blumont cited its proposed takeover of Cokal as a possible factor. Asiasons said it was hit by rumors that Singapore regulators were investigating the firm and denied that a probe is underway. LionGold said it was in advanced talks to buy out a gold-mining company, which it disclosed on Monday to be Peru’s Minera IRL Ltd.
The Singapore stock exchange is best known for real-estate investment trusts and other stocks that investors buy for their dividends rather than for their price appreciation. This means the local market is usually less volatile than some of its Asian peers, which tend to be more heavily affected by global money flows. But Singapore’s small-cap stocks can be volatile and are often traded by aggressive investors looking for big wins.
There is no evidence the selloff in small-cap stocks is hitting the Singaporean economy or any of its blue-chip stocks.
Recent strong showings by small-cap companies had already drawn scrutiny. At least one brokerage took steps to protect investors against what it saw as excessive investor enthusiasm about some of these stocks.
In recent months, UOB Kay Hian Holdings Ltd. blocked clients from trading 20 stocks, including Blumont, Asiasons and LionGold, online via their accounts with the firm. People who want to buy more than S$30,000 of the shares via brokers at the firm have to pay cash upfront, as opposed to trading on margin, with borrowed money.
Blumont and LionGold on Friday cited the curbs as a possible factor behind their share-price declines.
“I think [some brokers] were realizing there was a bit of a party going on [in the small-cap sector] and tried to reel it in,” said Kevin Scully, executive chairman of equity-research firm NRA Capital.
Companies related to Asiasons and LionGold also declined Monday. ISR Capital Ltd., an investment firm that counts Asiasons among its biggest shareholders, fell by as much as 47% to 12.2 Singapore cents. Innopac Holdings Ltd., a telecommunications-services provider in which LionGold owns 3.4%, lost as much as 42%, falling to 3.8 Singapore cents. Neither company responded to requests for comment after office hours Monday.
In June, the stock exchange said it would introduce circuit breakers by the year’s end to “safeguard against disorderly trading” and give investors time to evaluate sudden, sharp price movements. The stock exchange had no additional comment Monday.
Write to Chun Han Wong at chunhan.wong@dowjones.com and Jake Maxwell Watts at jake.watts@dowjones.com
Blumont, Asiasons, LionGold Plunge in Singapore
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