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.