Short Positions - Unhealthy cross holdings

TheStar Sat, Oct 24, 2020 08:00am - 6 months ago

In his speech, Zaid Albar said a survey done earlier this year showed that a majority of investors in the country have an unrealistic expectation of 24% to 30% returns per year on their investments.

Unhealthy cross holdings

IT’S perplexing to see small companies having stakes in other small companies. Rarely do such acquisitions add value to shareholders of either companies.

Instead what it gives birth to is an intricate web of companies that rest on weak foundations.

When one of the companies gets into trouble, the knock on effect is big, affecting all the other related companies.

Increasingly, XOX, which is a second tier telecommunications company with limited financial resources, is becoming a company with investments in other listed companies.

XOX emerged as a substantial shareholder in Macpie Bhd recently. On the face of it, there does not seem to be any synergy between the two companies.

Loss-making Macpie has seen a change in its business profile last year. It is now into organising events and music festivals related to the entertainment industry. During the Covid-19 pandemic, this segment of the economy is badly hit.

So why would XOX want to accumulate a stake in Macpie? On Oct 5, XOX through its subsidiary in Hong Kong emerged with a 9.16%. It increased its stake to 13.11% two weeks later.

XOX is not the only company that has bought into other nondescript companies. Others such as Focus Dyamics Bhd, Key Alliance Bhd and Fintech Global also have interests in other smallish listed companies. Incidentally, Key Alliance is a substantial shareholder of XOX.

Among all the companies, Fintech Global Bhd has the most number of investments. It has stakes in five other companies that are small in market capitalisation without a strong core business on its own.

XOX, which has a substantial stake in another listed company M3 Technologies Bhd, has cash of RM32mil based on its latest quarterly results. It undertook a rights issue to increase its cash positions. The 11% stake in M3 Technologies cost XOX RM5.2mil.

Shouldn’t the money be used to build its own business rather than acquiring stakes in other companies?

October effect

THE October effect is a phrase given that comes with perception that the 10th month should see markets slide.

But nothing is normal these days as we all know and what was abnormal just last year is considered normal today.

Still, it appears that up to yesterday the local stock market was down, albeit slightly, thus realising the concept of the October effect – so far.

Meanwhile, a melange of factors are at play in the market – chief among which are local politics, US politics and the Covid-19 pandemic which has wreaked havoc everywhere.

As much as politics seems unnecessary, it is always intertwined with stock markets.

Yesterday, a surprise announcement that the country would go into a state of emergency to combat the spread of Covid-19, shocked many.

At the time of writing, this continues to unravel but generally the concensus is that there will be minimal impact on businesses as it is more to serve political reasons. Still, the market reacted.

Markets and politics cannot be separated, and only time will tell what lies ahead.

What is imperative now is that the government takes the view that the well-being of the rakyat remains a priority.

In the upcoming budget, projects and policies that are planned should be done so for the benefit of the people.

Personal political aspirations should be cast aside as the average man in the street is likely struggling to make ends meet.

So with another week to go before October ends, we will see whether the old adage for the stock market will ring true.

As it stands, with the political conditions in the country seemingly at a stalemate and the impending US election, uncertainties appear to be in galore for even the most discerning investor. If nothing else, October will go down as an interesting month.

Let’s hope the last two months of the year bring more clarity.

Weeding out investment scams

SOME interesting statistics on investment scams were revealed by the Securities Commission (SC) this week during the launch of its Virtual InvestSmart Fest 2020.

In a speech by chairman Datuk Syed Zaid Albar, it was revealed Malaysians have lost a total of RM769mil to scammers over the last three years up to end-Dec 2019.

For the first six months of 2020, Malaysians were reported to have lost a total of RM914mil to scams. Notably, online scams were one of the most rampant amongst the scams perpetrated.

In the capital market, the SC observed an increase in incidences of scams.

Up to end-September, the regulator had received 370 queries and complaints on illegal investment schemes compared with 317 for the whole of last year. These scams usually promise extremely high returns with little or no risk, said the regulator.

Of late, there has been a rise of “clone firm scams” where the fraudster will impersonate a legitimate licensed entity to dupe investors into believing that they are investing with a legitimate entity. The SC’s findings show that the promotion of such scams are commonly carried out via social media channels – with WhatsApp and Facebook being the most prevalent channels.

Clearly, the use of social media is increasing in investment scams and, in some instances, celebrities are being drawn in too.

Why are people succumbing to these scams? Greed is perhaps one factor.

The other is having an unrealistic expectation of returns from investments.

In his speech, Zaid Albar said a survey done earlier this year showed that a majority of investors in the country have an unrealistic expectation of 24% to 30% returns per year on their investments.

Investors’ vulnerability is compounded by their search for yield in this low interest rate environment, he added.

This year’s event, running virtually from Oct 23-25, will enable the public to learn about the various investment opportunities available and understand how to protect themselves against investment scams or illegal investment schemes.

The public need to wise up.

Related Stocks

FOCUS 0.100
M3TECH 0.060
MACPIE 0.090
XOX 0.055


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