Yangzijiang share price to sink or swim?

8 August 2019 would be remembered by many investors as a scary day because Yangzijiang share price plunged by 20% before trading halt. On that fateful day, 10.5 million shares were shorted by the big boys, making it the highest volume stock being shorted.

As usual, retail investors were initially left clueless on what’s happening. It was only on 14 August 2019 that the management revealed in a SGX filing that the Executive Chairman and major shareholder, Ren Yuanlin, was currently assisting the Chinese authorities in a “confidential investigation”.

The SGX filing provided nothing specific about the nature of the investigation and also stressed that it is “business as usual” for Yangzijiang as none of its directors and business units are affected by the investigation. Yangzijiang share price subsequently recovered from a low of $0.86 to the current $0.95 level.

The recovery of Yangzijiang share price could be attributed to a lower intensity of short selling activities for the past week and also the aggressive shares buy back made by the management. Following the lifting of the trading halt, the management repurchased 12 million shares (as of 23 August 2019), partially restoring the confidence level of Yangzijiang share price.

The fact that the company was able to launch such aggressive shares buybacks showed that the company has significant firepower to take on opportunistic short sellers. Thus, it is better not to mess around with Yangzijiang share price.

In this article, I will share my personal opinions on this counter. I must put a disclaimer that I do not own any shares in this counter nor am I engaged in any short-selling activities. Whether Yangzijiang share price tank or surge will have no impact on me. In addition, this article is not meant to be a form of advice. Investors should consult their financial advisors before taking any actions.

Too premature to judge Yangzijiang share price

Many investors are worried that the investigation carried out by Chinese authorities would spell the beginning of the end for Yangzijiang share price. However, I am cautious not to jump the gun because it is still early days to make judgement on this counter. What if the investigation uncovered no wrongdoings? Whatever the case, I would not attempt to do a fundamental analysis on Yangzijiang share price until further details of the investigation are released to the public.

Due to the lack of details over the investigation, it is difficult to assess whether Yangzijiang share price is on the path of destruction. A lot will depend if the investigation involved financial irregularities of the company. Investors’ fears could be forgiven as the recent liquidation of Midas Holdings is still fresh in the mind of investors. Midas Holdings went into liquidation following the explosive revelation of unauthorized loans.

Casting aside the implosion of Yangzijiang share price, the unfolding drama is truly an intriguing S-chip case study which may have potential ramifications on legal precedence. To the best of my knowledge, I cannot recall another case of S-chip in which the Chinese authorities, instead of Singapore authorities, took actions against errant management. In Midas Holdings and China Aviation Oil, Singapore authorities (CAD, MAS and SGX) had taken enforcement actions against these companies. I am not certain whether the Chinese authorities had subsequently punished the parties involved.

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