Crony-isms 101:
Stock price manipulation on the Stock Exchange of Thailand
By Jon Fernquest |
Why do small stock investors need to be careful?
Big powerful stock investors use the stock exchange as a personal casino.
That's why.
Today's article clues you in to what's happening:
Casino image hard to shake
SET is safer than it was years ago, but speculators still have a powerful presenceBy Nuntawun Polkuamdee
Monday October 20, 2008
Current 45% stock slide not the largest in SET's history
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How much worse can it get? Down 45% since January, the Stock Exchange of Thailand is now at a level not seen since 2003. Nearly three trillion baht in value has been wiped off the market this year, thanks to the self-inflicted injuries wrought by Thai politics and the recent hurricane that has swept through the global economy.
Phatra Securities, in a report published last week, notes that in the past decade there have been eight declines of 20% or more, including a 46% drop from August 1997 to January 1998 and 47% when the dot.com bubble burst in 2000.
Of course, the exchange has yet to mirror the pre-crisis slide - from nearly 1,700 points at the end of 1993, the index fell to 1,200 in 1995 and reached a floor of 214.53 in August 1998.
(Photo on right of a slot machine in a Las Vegas casino)
a crony - a person who receives special favours from powerful friends (See glossary)
a casino - a place where people gamble (See Wikipedia)
clues you in to what's happening - tells you what is happening
manipulation - control an event for personal gain (See glossary)
price manipulation, manipulating prices - control prices for personal gain
self-inflicted injuries - injuries to a person caused by that person
wrought by - created by, built by
self-inflicted injuries wrought by Thai politics - the Thai people are injuring themselves through their political conflicts
a bubble - when asset prices, such as stocks or real estate, move far beyond their actual value (long-term trend value)
a bubble bursts - when asset prices stop increasing wildly and fall to much lower values
the dot.com bubble - a speculative stock market bubble during 1995–2001 (with a climax on March 10, 2000 with the NASDAQ peaking at 5132.52), driven by a group of new Internet-based companies commonly referred to as dot-coms (See Wikipedia)
dot.com bubble burst - when the high stock prices of the dot.com era suddenly fell
the pre-crisis slide - the rapid decrease in stock prices after the 1997 Asian Crisis
has yet to mirror the pre-crisis slide - does not yet match, is not yet as bad as
Small retail stock investors
One of the enduring images of the crisis years was the picture of distraught investor Vivat Srisammacheep with a gun to his chin at the SET's old offices at the Sindhorn Building on Wireless Road.
The boom years of the 1990s helped lure tens of thousands of retail investors into the market with the promise of quick riches. The subsequent collapse equally led tens of thousands to lose their fortunes and confidence in equities as an asset class.
We are unlikely to see a repeat exodus today, even with the rapid declines of the index over the past month. Perhaps today's investors are more jaded and have learned about the vagaries of the market, thanks to bitter experience as well as efforts to educate the retail investor base about the basic principle of risk and reward.
As well, a sizeable portion of the investor base today truly considers stocks a long-term investment, with more emphasis given on corporate fundamentals and dividend performance than day-to-day price movements.
enduring images - images that you remember for a long time (because they were in the news, for example)
a distraught investor - very upset (cannot think clearly)
equities - stocks
an asset - the things that a person or a company owns
a financial asset - An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits, and the like are all examples of financial assets
an asset class - a type of kind of asset (for example, real estate, stocks or bonds)
exodus - many people leaving from a place at the same time
jaded - bored and not enthusiastic (because you have seen too much of something and now understand the bad features)
vagaries - unexpected and unpredictable changes (that you have no control over)
the vagaries of the market - unexpected and unpredictable changes in the stock market
corporate fundamentals - the underlying health of the corporation, whether it can produce profits now and in the future
dividend performance - the annual return the company has paid to holders of its stock in the past
Still a haven for speculators
But even after three decades of capital market development, the SET continues to be a haven for speculators.
On any day, the most-active chart reveals a number of common names, stocks quoted at less than one baht each with a history of highly volatile earnings performance and share price movements.
On any given day, investor cliques can join hands, even sometimes with company management and major shareholders, to push share prices one way or the other.
For these investors, fundamentals are meaningless - indeed, the larger and more prominent the company, the less attractive it is for speculators, due to the greater difficulty in manipulating prices for large-cap stocks.
While corporate CFOs and fundamental investors may take the presence of an institutional fund as a vote of confidence in the company, such funds represent an obstacle to speculators wanting to stay out of the eyes of the regulators.
Complicit major shareholders are another prerequisite - a speculator seeking to manipulate shares upwards, for instance, could see his work undone if a major shareholder decides to dump his holdings prematurely once prices rise above fundamental valuations.
a haven - a safe place, a place protected from danger
a haven for speculators - a safe place for speculators (regulations do not put them in any danger of being caught)
most-active chart - the stocks that are being traded the most
investor cliques - small closed groups of investors that work together
prominent - well-known, famous
manipulation - control an event for personal gain (See glossary)
price manipulation, manipulating prices - control prices for personal gain
market capitalization - measurement of corporate or economic size equal to the share price times the number of shares outstanding of a public company. (See Wikipedia)
large-cap stocks - stocks of big companies (stocks of companies with a high total value of stock being traded)
an institutional fund, an institutional investor - a company that invests large amounts of money as part of its business, including insurance companies, pension funds, mutual funds, etc
complicit - involved in a crime or unfair activity
complicit major shareholders - people who own a lot of stock who are participating in the illegal price manipulation
X a prerequisite for Y - must do X before you can do Y
dump his holdings prematurely - sell his stock before he planned to sell them
fundamental valuations - the value of a company's stock based on its long-term business potential
Sophisticated speculation evades detection
Regulators and brokers agree that price manipulation today has advanced considerably over the past, as speculators seek to stay ahead of advances in market surveillance and enforcement functions.
A leading speculator today rarely trades from his own account - instead, dozens of associates are used as nominees to execute buy or sell orders to generate volume and churn the stock.
Shareholder lists for firms such as IEC, Bliss-Tel or Live - all stocks with low share prices but massive trading turnover - show common names, investor groups and price trends.
Turnover and prices might rise thanks to positive "news", whether it be an announcement of a share split, warrant issue or possible mergers-and-acquisitions deal.
The goal of a speculator is to solicit enough interest so that others join in to inadvertently push up prices, up to the point where they can exit at a handsome profit and before prices inevitably crash back to more sane valuations. At that point, the cycle might then start anew.
surveillance - the careful watching of someone by the police
market surveillance - watching the market carefully for signs of price manipulation
nominees - people who do something for someone else (for example, a Thai pretends to be the owner of real estate to help a foreigner avoid restrictions on foreign ownership)
associates - close business friends, people you are closely connected in work or business
associates are used as nominees - close business friends representing you or acting for you in business
churn the stock, churn volume - to buy and sell securities for customers more than necessary to earn more commissions for oneself
massive trading turnover - very large amounts of shares were traded
share split - when a share becomes too expensive for the average investor companies may "split the shares" which means each shares turns into many shares (4 news shares for 1 old share, for example)
a warrant, a warrant issue - Warrants are a form of traded option. They are the right to purchase shares or bonds issued by a company at a specific price within a specified ...
mergers-and-acquisitions - the buying and joining together of corporations
solicit - get people to do something
solicit interest in Y - get people interested in Y
solicit enough interest in Y - get enough people interested in Y
inadvertently - done by mistake (did not intend)
inevitably - will happen for sure (if not now, then later)
Small stocks a favorite target of speculators
Forced selling by margin investors can magnify share movements. Take LIVE, for instance. The media company saw its share price nosedive from 4.96 baht per share on Oct 1 to just 0.52 baht as of Friday, a staggering decline that included five straight days where prices fell to the 30% floor limit as investors bailed out en masse once word spread that the party was over.
On Oct 10, shares slipped under one baht each, leading to the 30% limit being waived - the stock fell 76% the next day, followed by two days of gains of 100% and 71% respectively.
The few dozen key speculators who lead trade of these small stocks control hundreds of millions, even billions, of baht in capital in play. Many boast close ties with politicians and business leaders, and occasionally join together in impromptu coalitions to play a given target. But for the most part, "targets" are split and separated by the players to avoid conflicts under an informal code that guides these underground movers of the market.
margin investors - investors that borrow money to purchase stock, using only part for their own money
staggering decline - a very large decline
bailed out - helped financially when you are in trouble
en masse - in large numbers
investors bailed out en masse - large numbers of investors in trouble were helped
Y waived - not required to do Y
leading to the 30% limit being waived - was not limited to 30% anymore
boast Y - can claim an achievement Y
boast close ties with politicians and business leaders - can claim that he has powerful friends in business and politics
impromptu - done without planning or organizing in advance
a coalition - when different groups join together and cooperate to achieve a shared goal
join together in impromptu coalitions - joined together in groups to cooperate without prior planning
informal code that guides - unwritten rules that they follow
underground movers of the market - powerful unseen people who can make stock prices move up and down as they wish
Passive approach to regulation
Regulators, meanwhile, appear to have shifted to a stance of caveat emptor - let the buyer beware - rather than the more preemptive approach taken in the past. In past years, the SET would publicly single out certain stocks as suspect, and impose margin loan and net settlement bans to curb volatility.
But cries of interference from brokers and investors about market interference have since led the exchange to take a more passive, formulaic approach. Shares with high turnover and valuations are automatically subject to trading restrictions and put on a weekly turnover list, disclosed to the public at the SEC website at http://www.sec.or.th.
Yet speculators say trading restrictions often come too late to be of any use in curbing manipulation, and actually hurt the unwitting small investors who are trapped with the shares after the large players have long exited.
"It's a big game. We know where the real capital is, and when it comes and goes," said one major speculator with a shrug.
"Small investors who are out of the loop are the ones who are at risk. Big fish eat the small fish. That's life."
a stance of Y - an opinion of Y
caveat emptor - (Latin) let the buyer beware (buyers have to be careful because laws and the government won't help them if they have problems)
shifted to a stance of caveat emptor -
preemptive approach - trying to solve a problem before it happens
single out - select for special treatment from a large group
impose margin loan and net settlement bans - require that you invest your own money, not borrow money (invest on margin)
volatility - moving by large amounts, suddenly and unexpectedly
curb volatility - reduce volatility
passive - let things happen to you, not active
formulaic - not new or original (has been used many times in this situation)
unwitting - does without knowing, involved without knowing
unwitting small investors - investors who don't know what is happening in the market (that the market is being manipulated by large investors)
out of the loop - not informed about events, not part of the group that is kept up-to-date with information about something, not having knowledge of or involvement in something
(Source: Bangkok Post, business, 20-10-08, Nuntawun Polkuamdee, temp-link)
