Trading suspension and points to note for elderly stock investors

Tips for retirement
Trading suspension

Retirees who own stocks will probably be more concerned about a suspended stock versus a declining stock. It is understandable as retirees often do not have a steady income. In this situation they may be caught by unexpected liquidity crisis if they cannot cash out by selling a stock because it is suspended from trading.

Stocks suspended for a long period

News about stock trading suspensions or resumptions is common. In some cases, the stock is suspended from trading for as little as half a day. In other cases, the stock suspension lasts for a long period of time. It’s a concerning situation for any investor.

If you are in such a situation, you should first understand:

  • Why is the company suspended from trading?

    Generally a suspension occurs when important information is needed to be released so as to make the market fully informed. For example, the company will be suspended from trading if it is about to release price sensitive information, such as announcing a rights issue or a placement, or if it is the subject of litigation, or if there are unusual movements in the stock price or trading volume caused by selected disclosure or leaks of price sensitive information, or market manipulation activities. Whatever the reason, a trading suspension can be associated with the announcement of good news as well as bad news.

    Trading suspension may also be due to regulatory reasons, such as in situations when a listed company does not comply with the Listing Rules; does not have sufficient operations or assets; is no longer suitable for listing; or insufficient shares are in the hands of the public.

  • When will the stock resume trading?
    It is the responsibility of a listed company to take steps to ensure that any trading suspension is as short as possible. Trading will usually resume once a proper announcement has been made. In case trading suspension is requested by the listed company, trading will resume when the specific reasons that support and give rise to a suspension no longer apply.
  • Why are some stocks suspended from trading for a long time?
    Long suspended companies are usually defined as those listed companies whose shares have been suspended from trading for more than three months. When the stock will resume trading depends on whether the company can submit a viable stock resumption proposal to the Stock Exchange of Hong Kong. Among the current list of suspended companies, the longest has been for more than 5 years.

    A listed company whose shares have to be suspended from trading for a prolonged period is likely to be experiencing some serious, difficult-to-resolve issues, such as:
    • The company is in severe financial difficulties; it has ceased to operate its businesses or is carrying on minimal operations.
    • The company is the subject of regulatory investigations; accounting irregularities have been uncovered; it has failed to release financial results, or its internal controls are suffering material weaknesses.
  • What can happen to long suspended companies?

    Delisting will be a possibility if the company fails to take viable measures for resuming the trading of its stock. After being delisted, the shares of the company can no longer be traded in the exchange.

    Some long suspended companies may eventually go into liquidation. If this is the case, the liquidation proceedings will determine whether and how much the shareholders can recover their invested money.

  • Where can I find information about a company suspended for a long period of time?

    The “Prolonged Suspension Status Report” on the HKExnews website contains information on the latest status and the trading resumption progress of those companies.

Points to note about stock trading by the elderly

While it seems that shareholders affected by a stock suspension have little choice but to be patient and wait, here are some useful investing principles that can help minimize the risks of stock investing.

Dos Don’ts
    • Invest only the money that you can spare: Retirees should only use spare money to invest and exercise discipline over stock trading so that you don’t risk losing all your savings and affecting your lifestyle.

    • Set aside an emergency fund: To do so, you must be in a position where it is viable for you to hold onto stocks for a longer time. In other words, you don’t need to sell your stock holding to meet immediate cash needs.

    • Invest prudently: The risks involved in speculating for short term gains are very high. Retirees should choose stocks carefully. Those companies with sound fundamentals, good management and stable dividend distribution may be considered as being part of the retirement planning portfolio.

  • Diversify your investment: Retirees should strictly follow the principle of diversification when building an investment portfolio. The weight of stocks in the portfolio must depend on your risk tolerance and financial situation. Since the elderly are in general less risk tolerant, they should keep more liquid assets and hold fewer stocks. Also, instead of investing in a single stock, funds that have a diversified stock portfolio may help reduce investment risks.
    • Speculate on market news: It is not unusual to see a stock rise sharply on market news one day, then collapse and be suspended from trading just as suddenly. Quick money is hard to earn. Retirees should not follow a crowd and speculate on stocks that they don’t understand.

  • Take out a margin loan to invest: This is not suitable for the elderly because it magnifies your investment risks. Margin trading puts the elderly under great pressure in the face of margin calls and forced liquidation. The losses involved in margin trading can be much greater than your margin deposit. This may cause great pressure and anxiety to the elderly, in particular.