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The term penny stocks is more commonly used overseas in the US, UK or Europe, but you could have also heard the phrase in Malaysia too. So what are they?
What are penny stocks?
“Penny stocks” is a loose name for cheap, low-priced stocks of small, often newly listed companies. There are a few different ways to define Malaysia’s penny stocks. Some definitions say it’s listed companies with a market cap of less than RM200 million, which is why in Malaysia penny stocks are also commonly referred to as small-cap stocks.
Another definition is they are stocks with a price of less than RM1. However, this is also a rather vague definition as some penny stocks have prices that go way higher than RM1.
Investors are often attracted to penny stocks for their cheap prices and potential growth opportunities, though there are risks involved with penny stocks, too.
How to identify penny stocks
Some of the typical characteristics of a penny stock include:
- Small company
- Market cap below RM200 million
- Newer company recently listed
- Stock price below RM1
- Limited financial track record
- Doesn’t pay dividends
How to buy penny stocks in Malaysia
- Choose an online broker. If you’re a beginner, our table below can help you choose.
- Open your CDS and trading account. You’ll need to provide your personal details, proof of ID and bank details.
- Confirm your payment details. You’ll need to fund your account with a bank transfer, cheque or cash deposit at branch.
- Find the stocks you want to buy. Search the platform and buy your stocks. It’s that simple.
Compare online brokers to buy penny stocks
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List of Malaysia’s penny stocks
| Company name | Stock name | Market cap (in RM million) | Sector |
|---|---|---|---|
| Ahmad Zaki Resources Bhd | AZRB | 140.50 | Construction |
| Amcorp Properties Bhd | AMPROP | 1,112.49 | Property |
| Deleum Bhd | DELEUM | 289.80 | Energy |
| Fajarbaru Builder Group Bhd | FAJAR | 37.63 | Construction |
| Favelle Favco Bhd | FAVCO | 132.04 | Industrial Products & Services |
| Hong Leong Industries Bhd | HLIND | 245.99 | Consumer Products & Services |
| I-Berhad | IBHD | 103.20 | Property |
| Kimlun Corp. Bhd | KIMLUN | 429.50 | Construction |
| Kumpulan Fima Bhd | KFIMA | 793.65 | Industrial Products & Services |
| Malaysia Smelting Corp. Bhd | MSC | 906.84 | Industrial Products & Services |
| Muhibbah Engineering (M) Bhd | MUHIBAH | 263.93 | Construction |
| Pantech Group Holdings Bhd | PANTECH | 64.31 | Industrial Products & Services |
| Scicom (MSC) Bhd | SCICOM | 394.55 | Industrial Products & Services |
| SEG International Bhd | SEG | 802.99 | Consumer Products & Services |
| Star Media Group Bhd | STAR | 265.88 | Telecommunications & Media |
| Syarikat Takaful Malaysia Keluarga Bhd | TAKAFUL | 3,609.88 | Financial Services |
| Tambun Indah Land Bhd | TAMBUN | 286.86 | Property |
| TRC Synergy Bhd | TRC | 168.17 | Construction |
| Tune Protect Group Bhd | TUNEPRO | 304.46 | Financial Services |
| UEM Edgenta Bhd | EDGENTA | 146.09 | Industrial Products & Services |
Note: These are some examples of Malaysian penny stocks listed on Bursa Malaysia. This list is not an exhaustive list nor is it a recommendation for any of the stocks mentioned. The current market prices are updated as of 19 July 2021.
Pros and cons of penny stocks
Here are some of the benefits and risks of investing in small-cap Malaysian penny stocks:
Pros
- Low prices. Because they’re low priced, investors can hold a diversified portfolio of penny stock companies without needing to spend as much as they typically would.
- Growth opportunity. Small-cap, newly listed companies can often present great growth opportunities if you pick the right ones. However it could be a bumpy ride to the top.
- Thrilling. Penny stocks often see their stock prices change significantly in little time, which can be exciting and thrilling for investors with a high risk tolerance.
- Day trading. Because of their large price swings, penny stocks are often used by active day traders.
Cons
- High risk. Penny stocks are very high-risk investments compared to other listed companies and ETFs with a longer financial track record. Not all companies that list on an exchange do well and a lot of penny stocks never become anything more than a penny stock.
- Very volatile. Penny stocks often experience extreme stock price highs and lows within a matter of days (or even within the same day).
- No income. Penny stocks rarely pay any dividends, as all revenue is usually reinvested back into the company to help it grow.
Penny stocks versus blue chip stocks
On the opposite side of the scale to penny stocks are blue chip stocks. In comparison to penny stocks, blue chip stocks are large listed companies that have been around for a long time and have a long, stable financial track record.
Some of Malaysia’s biggest and most well-known companies are considered blue chip stocks, such as Malayan Banking Bhd (MAYBANK), TopGlove Corporation Bhd (TOPGLOV), Tenaga Nasional Bhd (TENAGA) and Petronas Chemicals Group Bhd (PCHEM).
While penny stocks in most cases pay no dividends, blue chips stocks almost always do.
Should you invest in penny stocks?
You could consider investing in penny stocks if:
- You have a high risk tolerance
- You’re an experienced investor
- You’re willing to cut your losses if the stock price falls significantly
- You have a long investment time frame and are willing to ride out the volatility
- You’re happy to take a bit of a “gamble”
Tips for investors considering buying penny stocks
If you’re keen to invest in Malaysian penny stocks, here are some tips to help you get started.
Do your research
This is important for all investments, but particularly higher-risk investments like penny stocks. Blue chip stocks are, by their nature, lower-risk options as they’ve got a long history of strong financial performance.
Plan a strategy and stick to it
Before you start buying, decide which penny stocks you’re going to invest in and how much you’re going to invest in each one. It’s also important to decide what price you’d sell at if the stocks were to fall and stick to it to avoid the “I’ll just hold a little longer and see if the price jumps back up” mentality. The same applies for gains.
Don’t make emotional decisions
It can be easy to get emotionally attached to a penny stock, as they’re often the underdogs in your portfolio. So when their stock price falls and falls some more, you can find yourself making excuses as to why you should keep holding. This is why it’s important to make a strategy, so you leave the emotions out of it.
Don’t get sucked in by the “cheap” prices
Penny stocks may appear to be cheap in comparison to other stocks listed on Bursa Malaysia, but don’t base your investment decision purely on this. One factor that influences a company’s stock price is the demand for its stocks. The less demand from investors, the lower the stock price. So some penny stocks may appear to be cheap, but you need to ask yourself why this is.
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