DPM Lee's Reply to Parliamentary Question on Recent Increase in Speculative Interests in Low-priced Shares and Warrants
Issues Raised in Parliament
ANSWER TO PARLIAMENTARY QUESTION ON: Recent Increase in Speculative Interests in Low-priced Shares and Warrants
For Parliament Sitting on 11 Feb 1999
Question: To ask the Deputy Prime Minister whether the Government will act to cool the speculative fever and protect the investing public, in view of the increase in speculative interests in recent months in low-priced shares and warrants traded on the Stock Exchange of Singapore where prices and volumes of such shares and warrants have increased sharply with no apparent reasons and sometimes accompanied by rumours.
1 There has been a marked increase in interest in low-priced shares and warrants over the last few months. Most of the top volume counters have been shares and warrants with prices less than $1. These shares and warrants also make up nearly all the top gainers in recent months, although the stock market has declined since mid-January, and the prices of warrants have fallen back more sharply than the general market.
2 Several factors account for this interest in low-priced shares and warrants.
Investor sentiment in Singapore has improved, along with sentiment in the region.
After the larger stocks chalked up substantial gains, the interest of retail investors has shifted to low-priced shares and warrants.
Several recent company mergers and acquisitions have fanned rumours of take-overs of other SES-listed companies. Sometimes the rumours persisted despite repeated categorical denials by the companies concerned.
3 Low-priced stocks are not necessarily good investments. For the same dollar amount, an investor can either buy more units of a low-priced stock, or fewer units of a higher-priced stock. 1000 shares costing 10 cents each in a mediocre company will not necessarily outperform 10 shares costing $10 each in a good company.
4 Warrants are sophisticated financial instruments. Investors who buy warrants must understand the mechanics of how they work, and the principles which determine how much the warrants are worth. A warrant may be low-priced not because it offers good value for money, but because it will expire soon and has a high exercise price, which makes it unlikely for the underlying share to trade above the exercise price before the warrant expires.
5 Serious investors should consider the company's fundamentals such as its earnings, assets, management, prospects and price-earnings ratio before making investment decisions. Those who speculate in shares and warrants, or trade on market rumours, should realise and accept the attendant high risk.
6 The Stock Exchange will ensure that the stock market operates in a fair and transparent manner. It will enforce rules requiring listed companies to disclose price-sensitive information promptly and truthfully. It will not tolerate illegal conduct, such as insider trading or market manipulation.
7 However, SES cannot intervene in the market, or influence prices of shares or warrants. Investors must judge for themselves whether the price is right. If necessary, they should obtain expert advice before acting, whether buying or selling. They have to make their own decisions and take responsibility for the consequences.