The euphoric rally among 3rd liner stocks experienced in the past 1-2 months has generated much excitement in the market. Some of these stocks have doubled up in a matter of days, with no regards to fundamental. This may come to an end soon.
As the harsh economic reality starts to bite, weaker companies would have to raise funds to tie over the dry months and years ahead. An example is PERMAJU which is now implementing a Rights issue of Irredeemable Convertible Preference Shares (RCPS) at an issue price of RM0.05 each (which comes with free warrant) on the basis of 10 RCPS together with 1 free warrant for every 2 shares owned. The ex-date for this Rights issue is on July 13. You can see the announcement of the ex-date on Bursa Malaysia on June 19 (here) triggered the sell-down of the stock.
Chart: PERMAJU's daily chart as at June 24, 2020 (Source: Malaysiastock.biz)
On the other hand, there are a few stocks that tried to avoid calling for Rights issues. Instead they chose to raise fund by way of private placement. Their share prices rallied in the past few days. Examples are CNASIA and IRIS. The logic, if you accept it as logical, is that the major shareholders have to push up the share price in order to induce investors to buy into the private placement. Sometimes this effort of logic works. Oftentimes, it doesn't. As Abraham Lincoln once said; “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.”
Be careful out there.
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