Around the middle of last month, Murree Brewery — the 150-year-old company in the business of brewing beer and producing non-alcoholic drinks — made waves in the country’s equity market by its dividend announcement.

The company’s board of directors declared bonus issue at a startling 1,500pc, which was to say that Murree Brewery offered 15 shares for free on each share held by a shareholder.

In just eight trading sessions since the announcement the price of the Murree stock has gained 40pc, last seen at Rs1,214 on Friday from Rs862 on Aug 22 — and the price is still rising.

While it turned out to be a bonanza for those holding the stock, attempts were made by unscrupulous elements, which were left out, to scare the shareholders into selling off their stake.

A notice was circulated through social media’s WhatsApp, attributing it to PSX, and stating that the Murree payout had been ‘revoked’. The Exchange quickly disowned the notice stating it to be ‘fake’. It is difficult to say if any nervous shareholder sold off their shares in between the circulation of the fake notice and PSX’s denial of its authenticity.

But that is the way much of the trading is taking place at the PSX at the current moment.

The blame for wrongdoing and misleading, which at one time was heaped on the stockbrokers, has shifted to ‘investment groups’ and ‘gurus’ on social media, mainly through Facebook and WhatsApp.

“Anything can happen anytime in markets ... Market forecasters will fill your ear but will never fill your wallet”

And many of those gurus and groups are known to be doing a roaring business. The proof lies in the study of top-ten traded stocks on any given day. More than half of the aggregate market trading volume takes place in shares that can be counted on the tips of one hand. And almost all such stocks are priced below the par value of Rs10.

The modus operandi of a stock ‘guru’ or ‘investor group’ — which abound — is the ability to build their ‘brand image’, purchase in huge quantity a ‘penny stock’, called ‘katchra item’ in the local dialect, spread unsubstantiated news of capacity expansion, new product launch, imminent increase in product price of underlying company and above all, ongoing negotiations over its ‘take-over’.

Even Chinese entrepreneurs would be bewildered if they were to learn about the number of cement companies they are in ‘talks’ for a takeover! As the false information is spread more and more small time investors begin buying, which inevitably lifts the price of stocks. The shrewd ‘guru’ can then dispose off his holding, lining his own pocket with a tidy profit. The stock would eventually retreat leaving the unsuspecting small buyer holding the dirty end of the stick.

“Stock brokers who have been absolved of any blame for their activities are now under the watchful eye of the regulators”, says fund manager Nasim Beg, vice chairman, MCB-Arif Habib Savings. He states what many other market watchers believe is the case — that it is very difficult to regulate all that goes on in social media.

“Even if such a ‘white collar’ criminal, who traps small investors through fake and fabricated news is traced, it will be impossible to conclusively prove the crime in a court of law given the under-developed local legal system”, he said.

Most market participants believe that the 100 shares that form the benchmark KSE-100 index are unlikely to be manipulated on social media. It was mostly low-priced stocks of companies with tiny market capitalisation that could be cornered.

“With so many foreign investors; high net-worth individuals, financial institutions and mutual funds doing research-based trading in KSE-100 stocks, it would require a huge risk appetite and financial muscle to manipulate prices of 100 stocks; which would not be worth a try”, said one.

So who would protect the small investor, already less than 300,000 in number, who might put their hard earned savings in worthless scrips, which may eventually be lost? Whatever goes up must come down. And when the market recedes the stock of artificially elated prices would take the crowning blow. For those dealing in such stocks, it could be a ‘crash of another kind’.

A senior market participant denied that the rule of ‘caveat emptor’ (buyer beware) applies in this case for whoever is dabbling in shares on the recommendations of ‘gurus’ and ‘groups’ on social media have neither the knowledge nor the acumen of stock investing; they are blind followers of the piped piper who would lead them into the sea.

The small investors could possibly benefit from the statement by Warren Buffett — recognised as the most successful investor of all times: In his 50th anniversary letter released on Feb 28, 2015, Warren Buffet wrote: “Anything can happen anytime in markets. And no advisor, economist, or TV commentator — and definitely not Charlie nor I — can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”

Published in Dawn, Business & Finance weekly, September 5th, 2016