"Cheap Stock Trap on Nasdaq: Manipulation Alarm!"

Notable Trend in the Nasdaq Market

The technology index of the US stock markets, Nasdaq, is usually recognized for its giant companies such as Nvidia, Apple, and Microsoft, while the number of IPOs of small-scale foreign companies with uncertain financial conditions in the lesser-known corners of the exchange is steadily increasing.

Increase in Low-Priced IPOs

Just last month, companies like Megan Holdings, a shrimp farming maintenance service provider based in the Cayman Islands with only four employees in Malaysia, were trading on Nasdaq at $4, raising $5 million. Analyses indicate that there has been a significant increase in the number of such low-priced IPOs over the past two years.

Speculation and Risks

These types of stocks, while attracting individual investors, generally depreciate rapidly. Additionally, notable increases have been observed in some companies following name changes, cryptocurrency projects, or announcements related to artificial intelligence. According to statements, Nasdaq requested new listing standards for small-scale Chinese companies from the US Securities and Exchange Commission (SEC) on September 3, promising to provide regulations concerning this situation. However, while awaiting SEC approval, IPOs that do not meet the proposed criteria continue to be approved.

Performance of Low-Priced Stocks

According to research by retired finance professor Jay Ritter from the University of Florida, low-priced stocks that were IPO'd in 2024 experienced an average decline of %37. In IPOs conducted between 2001 and 2023, this rate has risen to %62. Since the beginning of 2024, a total of 164 low-priced IPOs have taken place in US stock markets; 147 of these occurred on Nasdaq. This exceeds the average number of 106 IPOs during the period of 2001-2023.

Initial Examples and Manipulation Concerns

Especially, most of the low-priced IPOs conducted this year and last year come from China-based companies. For instance, a Hong Kong-based digital advertising company named QMMM Holdings raised $8.6 million with a $4 IPO. However, despite experiencing a %1,700 increase after disclosures, the company faced losses the next day. The SEC has raised concerns about manipulation via social media in these types of stocks and suspended their trading.