The price of DBS has fluctuated greatly in the past 1 month or so. This increase in volatility has benefited short term traders. Fundamentally, there is no change in the business condition and environment that DBS is operating in. All said, these movements are not unexpected and can be anticipated if one is able to understand the effects of corporate actions and read the market well.
I am not suggesting that the share price is being manipulated. The point I want to make is that there are certain ‘invisible hands’ in the market (how else do you explain the buying of 100-200 lots at one go) and their buying and selling stirs up the volume and interest of this counter.
In the period straight after the rights announcement was made on 22 Dec 2008, the share price went down as the public reacts to the fact that DBS needed a capital boost and upon conversion, the rights will dilute future EPS and dividend payout.
After the initial fall, the share price went up under higher volume in the last week of Dec before the ex-rights date as the investors went in knowing that they will be entitled to the rights and they (the rights) can be sold in the open market in the event that the shareholders do not wish to hold them. The share price continue to firm in the first few days of Jan as investors are aware that it is in their interest for the price to remain high so that the rights can be disposed off for a substantial amount in the near future.
The fall in DBS share price start to accelerate on the 8th Jan, 2 days after the commencement of the rights trading. By then those who wanted to sell their rights would have sold and the incentive to keep a high share price is no longer present. More investors exited the counter as they took profit on the main shares that they bought just 1 week ago. As evident from the graph on the right, the turnover volume is the highest at this point in time.
In the period straight after the rights announcement was made on 22 Dec 2008, the share price went down as the public reacts to the fact that DBS needed a capital boost and upon conversion, the rights will dilute future EPS and dividend payout.
After the initial fall, the share price went up under higher volume in the last week of Dec before the ex-rights date as the investors went in knowing that they will be entitled to the rights and they (the rights) can be sold in the open market in the event that the shareholders do not wish to hold them. The share price continue to firm in the first few days of Jan as investors are aware that it is in their interest for the price to remain high so that the rights can be disposed off for a substantial amount in the near future.
The fall in DBS share price start to accelerate on the 8th Jan, 2 days after the commencement of the rights trading. By then those who wanted to sell their rights would have sold and the incentive to keep a high share price is no longer present. More investors exited the counter as they took profit on the main shares that they bought just 1 week ago. As evident from the graph on the right, the turnover volume is the highest at this point in time.
Immediately after Chinese New Year, the counter was in play again as the price went surging up based on the trades done and volume turnover. I believe this happened in anticipation of the new shares, which will be added on 2nd Feb. In light of the events that took place, I am confident that the price will go back down to the $8 range next week. My conclusion is based on the anchor price of $8.37, which is the theoretical price DBS should be trading in after the conversion of all the rights.
In short, the price movements that we have observed are typical of a blue-chip company with strong following and high liquidity, which decided to do a rights issue. I have no doubts that the share price of Capitaland will follow the same pattern should they issue renounceable rights too.
1 comment:
As a value investor,there's no point in analysing these short term trading movements. Better focus on whether DBS is able to earn more in the future.
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