Thursday, November 12, 2009

Some Good Questions About Fund Managers & Owners




There are about 3,000 to 4,000 daily readers for this blog but you will find that there are not that many comments or queries. I guess part of the problem is that I do shoot down questions or queries that are not well thought out, lol... Anyway, a reader did posed some interesting questions on fund managers and company owners. I will try to answer as best I could.

Digital Investor

Hello Dali, had been following your blog quite awhile and beside writing about those stocks, maybe it is time that you reveal what fund manager trying to do in the market. Here are some of the things that we see in the market and I try to understand what they're trying to do. I had been asking around and no one seem to know why...maybe you could:

1. If you look at the daily bursa announcement, you can see that EPF will buy big qty of certain counters and sell it on the same day too or maybe few days later. Or they will sell and then buy back. In short, they're profiting from others instead of buying and hold. I dont see this happen with foreign funds investing in Bursa Malaysia. Although it is not illegal but dont you think that this is wrong way of fund management?
Comments: You will find big funds buying and selling the same shares in the same week, sometimes even in the same day. Usually, its to disguise their motives - they could be adding or selling positions. For some counters that are a bit illiquid, these funds are actually drumming up interest to offload or buy shares by being on both sides. Is it legal, its a gray area. Technically, if they pay full broke both ways and do not sell short, they are deemed OK, but a more vigilant regulator may see things differently. Is that "wrong", well that is hard to qualify, and really you cannot stop a fund from buying and selling if they pay full broke. I do agree that this gray area is more likely to be "wrong" as it helps to paint a distorted picture of the real activity behind these operations. If I was the regulator, I would keep a closer eye and try to wipe that out of the system as it affects the integrity of the market place.

2. The other "unhealthy" process happen in Bursa is blocking a particular counter price from going up or going down by parking big qty in the sell queue or buy queue. One good counter you can see this happen is with ytlpower. What is the purpose? Dont they want their share price to go up? For today, it is with Genting Malaysia, big sell and buy qty being park there and basically the price got no where to go.
Comments: Usually you can only park the shares, if you have the shares already, you certainly do not want to be caught short if these big sells get taken out. Again, you cannot stop people from parking big sizes to "deter prices from rising". Why would company owners want to do that, or it could be a substantial shareholder, or just a fund with a big position ... - they could be waiting to collect more shares, they could be "maintaining price trends" for a corporate action (rights issue, share placement, share issuance), or that they just do not think it is "time for action".
Another possibility is due to the market makers of called warrants, they have hedged positions and depending on their exposure, they may want to do that as well. Again, very legal, if you have the balls and resources, take them out, but I am sure they would be covered. To them, its not important if the shares go up or down as long as they are covered.

3. Another method is to buy and sell big qty at basically the same price. What is the purpose? Dont they hv to pay broker fees?
Comments: Same as the first question.


p/s photos: Zhou Weitong

10 comments:

ttm said...

What about the other end of the spectrum? The 1 (small) lot transactions. They are obviously markers, but what do they mark? Sometimes I see these transactions over an extended period (weeks), but price movements continue to be minimal. And the other day I saw a string of 1 lot transactions, 5 or 6 in a row, then boom the price is taken out, then the same tick tick tick at the next price, then boom, taken out - are they just having fun?

sky said...

hi,

I am an avid reader of your blog. You are really good at analyzing and explaining financial stuffs.

I would like to ask a question about share private placement. If I am not mistaken, G-Packet had recently announced a share private placement. I have noticed that the share price have been rising rather quick in a month before the announcement came. Does this means that the price of a share will go up when there is a share private placement or is this the special case?

Thank you.

Regards,
Sky

tohff7 said...

Usually, it's not EPF who buy and sell the same stock in the same day or same week. EPF do outsource a portion of their fund to external asset management companies. Not just 1 or 2, but quite a lot

So, no surprises if those asset managers have different views regarding a stock price.

Low said...

Hi Dali,

Regarding acquisition and disposals of shares by EPF, could it be due to the fact that there are several portfolio managers for EPF and their actions are separate and independent from one another?

Just like how we can get different calls to buy or sell a certain stock from different brokerage researches.

wc said...

"There are about 3,000 to 4,000 daily readers for this blog but you will find that there are not that many comments or queries. I guess part of the problem is that I do shoot down questions or queries that are not well thought out, lol..."

With due respect, the fact is that about 2,000 to 3,000 of us are here daily just to check out the pretty babes... LOL. Just kidding though.

Shadow said...

I refer to the 1st and 3rd questions. Another reason for why EPF is buying and selling the same stock at the same time is because if it is done by their fund managers. EPF farm out large amount of monies to external managers and given the limited choice of investment in Malaysia, the odds are good that one manager may decide to buy a stock the same time when another manager is thinking about getting out.

Fung said...

It is just a waste of public's money. At the end of the day, the commission goes to BUrsa and broking firm.
This is the way for Bursa to show volume in the market, I guess.

Hawk said...

hi Dali,

i know you are a stock expert but can i ask you something on property?

Recently i m looking for link houses around Bandar Utama, Bukit Jalil & desa park city and some other established freehold development. I realised that all the property is above RM 1 millon. i find a bit crazy. should i buy now or do you think property price will come down.

How do i gauge the property market sentiment. as i m not sure the surge in property price is due to low interest rate. ie demand surge due to low holding cost (for those only have 10% down payment) and for the rich they have no where to park their money as FD is historically low.

emacro said...

Remember the adage of investing: be fearful when others are greedy and be greedy when others are fearful, then one won't have to worry about who is doing what bid/ask massaging....

emacro said...

Another anecdote from Ben Graham, "when you but a stock, just keep in mind that it can rise 50% fromthe low and can equally likely to drop 33% from the high". Then one knows where one stands....