Is Olam price spike due to market misconduct?

Published March 26, 2014

First Published in Business Times on March 19, 2014

Letter to the Editor

Mak Yuen Teen

THE commentary, “Why no SGX query on Olam price surge? (BT, March 15), mentions the perception that SGX may be less willing to query government-linked companies (GLCs).


As part of a soon-to-be-completed study on market reaction to responses to stock exchange queries undertaken by one of my students, we found that of the more than 800 queries issued by SGX from January 2009 we looked at, 12 relate to GLCs, or about 1.5 per cent of all queries. The queries covered in our study are those for unusual price movements and disclosure issues such as those relating to announcements, annual reports and market rumours.


The 12 queries were issued to eight different GLCs, with half relating to unusual price movements and half relating to disclosure issues. Since the GLCs make up about 4.5 per cent of the total number of listed issuers, the percentage of queries directed at GLCs does appear to be somewhat lower than for other issuers. However, large-cap companies in general, not just GLCs, were less likely to be queried. Other overseas studies have also found that smaller companies tend to attract more queries.


Thus, we cannot conclude that SGX is more reluctant to query GLCs or larger companies just because they receive fewer queries. Smaller companies with fewer resources and weaker processes in place may be more likely to have disclosure lapses, and their shares may also be more susceptible to speculation and manipulation.


Notwithstanding this, I think the commentary of March 15 is right in asking why there has been no SGX query when Olam’s share price surged by 40 per cent from the beginning of February until the trading halt which was called on March 13.


In the report, “SGX reiterates regulatory stance in response to Olam” (BT, March 17), SGX explained that, of the 13 analysts who issued reports on Olam in February, seven had raised their target price by an average of 10.4 per cent, with the highest increase being 21.4 per cent (we do not know what the other six thought about the stock, but presumably they were far less optimistic). It is well known that analysts’ estimates tend to be optimistic on average, but even the most optimistic analysts generally did not appear to foresee the 40 per cent increase in Olam’s share price.


I believe that the sharp increase in the price of Olam over the past few weeks warrants closer scrutiny by the regulators. SGX and other relevant regulators need to go beyond making statements about how seriously they view market misconduct and about sparing no effort in conducting investigations and taking actions.


I agree with the March 15 commentary that “SGX should look into who the buyers were in the stock’s marvellous five-week run to see if the takeover was leaked”. As the March 15 letter, “Temasek takeover of Olam a poorly kept secret?”, rightly pointed out, “in such a takeover, there will be many people involved in planning it and the chances of a leak are great”.


Rather than just assuming that the price rise is the fulfilling of analysts’ prophecies, there is a need for the regulators to investigate if market misconduct is actually the real reason.


Mak Yuen Teen

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