Saturday, March 27, 2010

GMG Global: Is Something Brewing?

The share price of GMG Global touched $0.16 yesterday a level it has not seen for sometime. With the fundamentals of the company relatively unchanged, the huge number of shares changing hands suggests two possibilities.

First, it could be that GMG Global is a beneficiary of the shift in interest to penny stocks given the relative lull in the broader market, with retail investors more interested in property (still) and Jack Neo/Ris Low/Random Incidents@RWS news articles.

Second, it could be that as some of the sensible forum posters have suggested, that people behind the scenes are accumulating shares so that they can be used for a future M&A deal. In this case, shares bought back (but they have to be declared don't they!?) will be used as part of the deal to the target, offsetting some degree of cash consideration.

But first, it is not impossible that GMG Global's recent rally was driven by fundamental reasons, most obvious being the climb in natural rubber prices. The price of natural rubber is affected namely by the automotive industry as more cars mean the need for more tires. And recent evidence suggests that with the return of consumer spending in China, GMG Global will be well poised to capture that geographical market as SinoChem International, a PRC SOE, has a strong network in the country.

What Is Likely

Having said all that (well not enough actually), I am inclined to believe that the recent heavy trading activity in the counter is spurred by a believable underlying theme - China's Auto Boom - strengthened by a interest by dealers and trading representatives moving into the penny space. As one Business Times columnist puts it, if retailers do not buy shares, these people have to do it themselves albeit at lower commission costs.

The China Auto Boom story is a very believable theme simply because like America in its boom years, there will be an insatiable appetite for gas guzzlers to people living in the province to do their holidaying. Yes, you might be wondering why don't take they take trains or for the matter bullet trains. The use of locomotives will take some demand for autos, but the underlying trend is that China will become a huge consumer market for cars, a boon to GMG Global.

For those who are looking to buy into the counter for fundamental reasons, I would suggests waiting for a few more days when the settlement of contra trades are over, and most of the strong-weak hands have churned their profits  off each other.


  1. Hi sgstockpicker,

    I have been accumulating and holding on to GMG for quite some time. There are quite a few reports that I've come across that promoted this counter but it hasn't really start moving much, hopefully this round it is really coming. GMG had a rights issue last August at a price of 5.5 cents at a ratio of 9 for 10. I pick up 20 lots from this rights issue and still awaiting for the right price to sell. Do you think it can go up to 25 cents?

  2. Hi Anonymous,

    I don't think that this stock can reach 25 cents within this year. But that is my opinion and I would love that it goes there.(I'm vested too).

    Its trailing PE is almost 100x and it will still take sometime before earnings start coming in. So it is a good thing you bought into the company when it had a rights issue.

    I really feel that churning by local dealers/brokerage or M&A activity might be on the cards. Alternatively, it could be due to institutional funds buying into the company as none of the major shareholders have filed anything.

    Nonetheless, I still stand by my call that its long term prospects are good, valuations are challenging, share price linked to the themes of the day.

    Maybe you can share with me some of the reports to my email ( as most of the material i am getting are PR release.

    hope i answered your questions