Dear readers, recently, I read the news that seven companies have joined the SGX’s watchlist. I will not be naming the names of the seven companies as they could be easily found in the news. The implication of a company being placed on watchlist is that the company would have to fulfil a set of criteria, failing so which it would have to be delisted.
In this post, I would like to highlight a possible drawback of the SGX watchlist and which is in a nutshell, the “Self-fulfilling” prophecy. Why is it so? Well, imagine if a stock is placed on a watchlist, how would investors react to the stock? I think most of the investors would likely shun a watchlist stock and thereafter the stock on the watchlist will simply have its stock price head south even more.
The above is quite similar to the recent move of share consolidation. When a stock consolidate its share, its share price increase some multi-fold. But to begin with, if the share itself is fundamentally not strong, investors may still sell down the stock so that the stock continues to trade in the order of its pre-consolidation share price.
Hence, in my humble opinion, it is really very bearish for a stock to be placed on a SGX’s watchlist since on one hand, the company may be trying hard to boost its fundamentals but on the other hand, the very name of it being placed on the watchlist is likely to encourage investment in the stock.