Forced Selling Fears Grip Stocks After Sharp Declines
Several Thai stocks experienced significant drops, sparking market speculation about forced selling. Investor portfolios face liquidation when they fall below a specific threshold, potentially triggering rapid, widespread declines across multiple holdings.
Forced Selling: A Possible Trigger
The shareholding structures of certain companies show similarities, suggesting possible forced selling by specific investors. This situation arises when a portfolio’s value dips too low. Brokers then start liquidating positions, which can lead to a swift decline.
According to Kitpon Praipaisarnkit, Executive Vice President at UOB Kay Hian Securities (Thailand) Plc, several stocks saw declines on Monday. He pointed out that these drops might have been caused by forced selling. The stocks that fell over 10% — getting close to the 15% limit — had links to a single major shareholder.
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“There are about 3–4 stocks with the same major shareholder that experienced steep declines. If these shares were held in a margin account and reached a trigger point, simultaneous forced sales across the portfolio could have occurred. However, this cannot yet be confirmed as the definitive cause,”
—Kitpon Praipaisarnkit, Executive Vice President at UOB Kay Hian Securities (Thailand) Plc
The benchmark SET index saw a 0.6% decline during the period. In the past year, the index has fallen approximately 8%, reflecting broader economic concerns (SET website).
Specific Stocks Under Scrutiny
Stocks that hit their floor limit included KTC, BEC, XPG, EA, NEX, and DOHOME. One significant investor is known to have stakes in XPG, KTC, BEC, and TPS, causing market speculation about forced selling. This is especially concerning because of the steep declines compared to market conditions.
The sharp drop in DOHOME was linked to specific issues. A report revealed non-standard products in its steel and electrical plug inventories, some lacking Thai Industrial Standards (TIS) certification. This issue, although found in one branch, affected investor confidence, contributing to the stock’s decline.
The sharp declines in EA, NEX, and other smaller stocks haven’t been clearly explained. No definite reasons have been provided for their steep corrections.
