Have you seen a stock whereby almost every fund manager in town has invested in it? One such stock is Malaysian-listed consumer SPAC, Red Sena Berhad.
The current list of shareholders of Red Sena shows that this stock has attracted numerous domestic and foreign fund managers:
What would a stock “with the following of numerous fund managers” indicate about the general market conditions? As shown in the graph below, one may make the following key observations:
- Trading volume of Red Sena usually spiked prior / during (i) occurrence of a future negative downtrend in Malaysia’s FBM KLCI index; (ii) future highly volatile events such as UK Brexit vote / US Election
- For the past 12 months (excluding January 2017), there were three spikes in trading volume of Red Sena, namely:- (1) March – April 2016, followed by a negative downtrend in FBM KLCI from mid April onwards, (2) June 2016 – coincides with the timeline of the UK Brexit vote and (3) mid-October 2016 – weeks before the US Election
- There was another recent spike in volume which occurred on 10 January 2017 (yesterday)
It is quite apparent that given the participation of numerous fund managers in Red Sena, the trading volume of Red Sena may possibly indicate the general market conditions of equity market in the short term. If the risk adversity of the fund managers increases, this may possibly translate into higher trading volume of Red Sena as this stock is generally perceived as defensive / yield-based counter (due to its guaranteed cash value in trust).
So what does the recent spike on 10 January 2017 really mean? Possible reasons include:
(i) Potential corporate exercise to be announced by Red Sena (investors are still waiting for the announcement of Red Sena’s qualifying acquisition);
(ii) “Temporary parking of funds” whilst waiting for pre-CNY selldown in the stock market. For the past decade, the FBM KLCI has the tendency to reach its peak in December or January before suffering from profit taking before Chinese New Year (CNY) as investors cash out from the stock market ahead of the Lunar Year. Read More
(iii) Increasing volatility / risk adversity as we are about to enter the earnings season (end Jan-Feb)
(iv) Upcoming Trump inauguration
(v) Upcoming meeting of central banks – FOMC & BNM
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