Panic punishes smallcaps

Financial authorities' plans to delist "penny stocks" from local bourses have put substantial pressure on small cap stocks, causing up to 100 such stocks to hit limit-down in mid-session on the Taiwan Stock Exchange yesterday.

In an attempt to pacify investors' panic caused by the proposed delisting mechanism, the Financial Supervisory Commission yesterday said it has no specific plan yet for carrying out the delistings.

"Whether or not to include trading prices and transaction volume as elements of the delisting mechanism is currently under discussion," the commission said in a statement yesterday.

Jerry Huang (黃顯華), a member of the commission, told the Taipei Times that the regulatory authorities haven't set a timeframe for the proposed mechanism and have asked investors not to panic.

He stressed that no change will be made before holding public hearings with the securities-related sector, Huang said.

The government's proposed move to delist illiquid stocks or listed companies whose stocks consistently trade below their par value of NT$10 have led to investors dumping shares of small cap firms such as construction companies Kuoyang Enterprises (國揚實業) and Kindom Construction Corp (冠德).

Kuoyang closed down 6.63 percent at NT$8.45 while Kindom traded 6.67 percent lower at NT$8.4 on the Taiwan Stock Exchange.

In general, shares of low-price stocks and other firms suspected of weak, less-than-transparent financial reporting were down 5 percent to 7 percent, especially in construction, second-tier printed circuit board (PCB) and networking makers, Cecilia Liu, an analyst at the SinoPac Securities Corp (建華證券), wrote in an investment note yesterday.

Integrated circuit packaging and testing firms were also hit. Vate Technology Corp (立衛), closed 6.8 percent lower at NT$4.25 and Orient Semiconductor Electronics (華泰) fell 6.84 percent to NT$1.77. Traditional industry companies also tumbled, with cable firm China Wire and Cale Co (華電) dropping 6.67 percent to NT$4.89.

Huang dismissed market speculation that the commission would suspend the proposed plan altogether in the wake of investors' panic.

"The concrete measures of the proposal will be put forth in the mid or late November as scheduled previously," Huang said. "But it is not ideal to use only trading prices or volume to evaluatea a stock, as they can both be easily manipulated," he added.

On the local bourse, 328 out of 1,135 listed companies saw their stocks under face value at NT$10 per share, according to statistics compiled by HSBC Asset Management Taiwan Limited (匯豐中華投信).

As many as 90 stocks, including those of 29 electronics companies and 61 traditional industry firms, have seen losses in earnings per share for three years in a row, according to the asset management company.