It is best to stick to fundamentals, senior fund manager Shireen Muhiudeen, who advises some of the largest international blue chip pension funds, told FMT Business.

She said investors should “stick to fundamentals” and avoid the “dubious ones”.

“Plummeting prices should serve as a clear warning of what could happen if one turns a blind eye to the signs,” she said in response to unusual market activities last week that led to several counters hitting limit down.

When the share price hits limit down, it is nerve-wrecking for the small-time investor, Shireen said.

“More than that, it has severe implications on their overall investment position,” she added.

Several companies, including Rapid Synergy Bhd, YNH Property Bhd, Sarawak Consolidated Industrial Bhd, Mercury Securities and Silver Ridge Holdings Bhd saw sharp drops in their share prices, some of them hitting limit down.

Technology stocks were also hit. They include Globetronics Technology Bhd, Dataprep Holdings Bhd and Heitech Padu Bhd.

This led to the coining of a new phrase: the “Limit Down Club”.

Bursa Malaysia and the Securities Commission later issued a joint statement saying that they were “closely monitoring” the situation and insisted that the market fundamentals “remain strong”.

They also assured market players that there should not be any cause for concern.

However, at least two financial institutions imposed a cash-upfront requirement for investors trading in those stocks.

However, Shireen said, there is a larger problem at hand.

Share prices hitting limit down on a rotational basis is a sign that all is not well, she said.

“There are two sides to the market,” she explained.

One is a reflection of companies that are priced on fundamentals. These have clear prospects and boards of directors and management teams with depth, she said.

“But there is another side that comprises companies that should not even be listed,” she said. “Their business models are vague, their ownership opaque and their liquidity is not what it seems.”

Shireen stressed that Bursa Malaysia has a very stringent and robust initial public offering (IPO) process.

However, she said, subsequent ownership changes and capital raising efforts are open to abuse.

“Many companies are controlled via nominees who are highly marginalised, falsely creating volume to entice unsuspecting investors,” she said.

“Some counters are ‘cornered’ to lift their share prices to dizzying heights, enabling these companies to seek private investment schemes to provide collateral.

“Unfortunately the number of these types of companies is growing,” she added.

Shireen pointed out that if no action is taken it will undermine the integrity of the capital market.

“Their leverage puts systematic risks on the broking houses as well as financial institutions and non-regulated lenders that provide margin,” she said.

She said there are ways to unravel these issues without causing the bottom of the market to fall out, and the necessary tools are also available.

“The issue is whether or not the right moves will be made,” she added.