Saturday, June 19, 2010

Danger! and Parkway holdings

World cup season has caused a drop in volume in trading activities, though the STI has been rising. In Technical Analysis terms, when a price is rising with dropping volume, there is danger!

Anyway to keep things in perspective, the graph below shows the performance of the STI since 1987. ( I gotten the data off yahoo.) As you can see corrections from peaks usually last quite a while..


In other news, the battle for Parkway holdings by the two firms, Fortis Healthcare Group and Khazanah is making quite a big headline.Here is a summary of events
  • Fortis bought a part of parkway holdings 2mths ago, bringing their share to 25.3%
  • Khazanah, who has been a shareholder for some time already, then wants to take control of parkway by making an offer to buy more shares in order to reach 51.5% holding, with an offer price of $3.78. This translate in them buying 364 out of every 1000 shares that they do not own.
  • If Fortis wants to block Khazanah from doing so, they will have to buy ALL the shares that they do not currently hold. This is because of SGX ruling that states that if a firm has recently became a substantial shareholder, they cannot make a partial offer for the company but would instead need to make an offer for the WHOLE company.
This translates to the following issues
  • Fortis need to spend more $$ than Khazanah in order to take control of parkway, because they need to make an offer for the WHOLE company, while Khazanah needs to reach only 51.5% to control the company
  • Fortis can actually give up their recently bought share to Khazanah and make a decent profit of around 6%
  • Shareholders wise, if you are unsure how the saga will end, and are happy with the current offer price of $3.78 by Fortis, just sell into the market (which I believe is trading around that price) Else, you might not be lucky enough to be the 364/1000 shares people that Fortis intend to buy

4 comments:

Teo Soon Kiat said...

May I know why if there is a rise in the pricing with a drop in volume indicates a danger?

ntuchartist said...

Hi Soon Kiat,

In general, when a stock price rises with decreasing volume, it is said to be exhibiting bearish indicators.

This is because when a stock price is rising with dropping volume,it means that only minority of the people feels that the high price is justifiable at that moment in time. ( And hence could be pointing to a correction that could be coming along)

Another way to think of it is..if there is lots of people who are buying up the price, they will be less reluctant to sell it when the price drops, hence providing an artificial price support.

Teo Soon Kiat said...

Thank you for yr detailed explanation. I uds.

ntuchartist said...

No problem.