Short Position - Speculation vs Manipulation


  • Markets
  • Saturday, 11 Jul 2020

There has been a slew of unverified news appearing on obscure websites and even companies commenting on blog entries as a justifiable reason for a jump in their share price. That brings into view the question of speculation and manipulation. Speculation has been seen as an acceptable reason for share prices to move but when “news” appears on sites that have no compulsion to have independently verified their news entry, then the motive of such news has to be questioned whether it borders on manipulation.

Speculation vs manipulation

WHEN the stock market gets red hot, the urge to have news of what companies are doing to improve their business is desired.

News of acquisitions and investments, and moves that will theoretically make a company money or change its fortunes via the entry of a new shareholder or business can be a driver of sentiment surrounding the stock and can act as a catalyst for a rerating of the stock.

News flow is an important generator of momentum, as it gives validation to market murmurs that may have taken place before this.

The importance of verified news in a sea of speculation is even more crucial. Chatter of something brewing might lift a stock in normal times but when everything starts to move on the slightest bit of news flow, then it becomes a valuable commodity.

This happened during the 1993 super bull run and even during the heady days of the dotcom boom.

It is no different when healthcare stocks are now the flavour among investors. However, the division between the credible and established glove players and the wannabes in the healthcare space now is apparent.

The share prices of big glove companies are lifted by average selling prices of their product. The belief that is going to keep rising is fuelling the buying frenzy in that category of stock.

For those companies that are not enjoying that spur, it is then important for operators of those stocks to generate news that the new business they are entering into will equate to what the big boys are enjoying.

Unfortunately, there has been a slew of unverified news appearing on obscure websites and even companies commenting on blog entries as a justifiable reason for a jump in their share price.

That brings into view the question of speculation and manipulation. Speculation has been seen as an acceptable reason for share prices to move but when “news” appears on sites that have no compulsion to have independently verified their news entry, then the motive of such news has to be questioned whether it borders on manipulation.

The regulators have to be mindful of pump and dump activities in a market that is hot. Social media has changed the way people consume their news but a regulator has the duty to ensure that whatever news that appears in the public domain needs to pass their own scrutiny to avoid manipulation and insider trading from festering.

A hill to climb for Gunung

Gunung Capital Bhd’s foray into Yi Lai Bhd is indeed puzzling as there are no synergies between the two companies.

Gunung Capital is into provision of land transport services and mini hydroelectric dams that are located in Perak. As for Yi Lai, it is into manufacturing building materials which is a highly competitive industry.

Yi Lai has been loss making in the past three years but has about RM50mil cash.

As for Gunung Capital, it has a decent balance sheet with cash of RM23.4mil as of the end of last year.

In the last two weeks, Gunung Capital has been building up a presence in Yi Lai. It now has a 5.99% stake and has been buying the shares at above RM1 each.

Gunung Capital has justified its purchase as it considers Yi Lai an undervalued stock and the company hopes to secure higher returns on its investments.

For Gunung Capital to justify its investment decision, it first has to ensure that Yi Lai returns to the black.

How can it chart the fortunes of Yi Lai by having a mere stake of 5.66%?

Unless Gunung Capital wants to increase its presence in Yi Lai and have a substantial say in how the company is managed.

If that is the path Gunung Capital chooses, it can be an expensive affair. The shares in Yi Lai are tightly held and taking control is not easy.

More importantly, what is really the value of Yi Lai, apart from its cash position. It should be worth considering that the major shareholders of Yi Lai has offered to take the company private at only 78.5 sen three years ago.

So why is Gunung Capital paying much more for Yi Lai?

Debt resolutions

COME the end of September, when the loan moratorium ends, there could be a flurry of borrowers left in a quandary.

Banks have already said that they are trying to engage troubled borrowers before the end of the moratorium.

The message is the same from Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz who has said that those facing financial difficulties should be consulting their respective financial institutions or the Credit Counselling and Debt Management Agency (AKPK) for advice.

It is left to be seen how smoothly this process will go.

For starters, one wonders whether people are taking the effort to engage their banks or AKPK.

Secondly, it is left to be seen how challenging those conversations are going to be, considering that there could be a deluge of people seeking such help.

What if talking to one’s bank turns out to be a painful one-sided conversion from the standpoint of the individual? Besides individuals, there will also be small and medium-size firms that are going to be facing challenges meeting their debt obligations come end-September.

The good news is that AKPK and the Corporate Debt Restructuring Committee are said to be gearing themselves up to face the situation.

The bad news is that no one really knows how the situation is going to unfold come the end of the moratorium.

Besides these two bodies having to make themselves more prepared to face a spike in cases coming to them, perhaps a new dedicated body ought to be set or at least be considered to be set up in the event that the demand outweighs what these bodies can cope with.

As one industry expert puts it, it is perhaps timely for the authorities to consider setting up a new debt resolution forum to cater for the needs of individuals.

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