Just few days ago, Felda Global Ventures(FGV) price rose almost 30% to 1.64 MYR, effectively erasing the loss sustained since August 1, 2015. What seems to be a rebound may soon be proven a mirage. Here's why I think Felda's recent price hike is merely a noise in its long term downwards trend.

RM20 Billion Bursa Injection

On Monday, Prime Minister Najib Razak announced the injection of 20 Billion MYR into 'undervalued Malaysian companies' through state equity investment firm, ValueCap. Expectedly, this announcement shook up Bursa by 1.9% and FGV seems to be a beneficiary of such good news for the market. However, good news like this doesn't fundamentally improve FGV's business. In other words, Najib' s announcement might have improved investors' confidence in Bursa, it would not affect FGV's business operations directly.

Misunderstood Confidence

FGV's price hike was flagged as Unusual Market Activity by Bursa on Monday. Even FGV's board was not aware of such unusual hike, reportedly. It will not be surprising if the market speculates FGV would get its share of 20 Billion MYR, due to the fact that FGV is a government-linked company. However, thus far, ValueCap has not announced any decision to acquire stakes in FGV. Therefore, investors' confidence in FGV may soon be proven a misunderstanding.

The Stock Trading Business

As a stock trader or investor, it's important to know that stock prices only reflects investors' confidence in the business, but will not affect the business operations itself. Even if ValueCap decided to invest in FGV in the future (speculation alert!), FGV's price may rise for a short while due to increase in demand. Realistically,  FGV's stock price may fluctuate, but its working capital would remain the same, thus will not mobilize FGV financially to pursue more businesses and improve its profitability. With a 20 Billion MYR vault, ValueCap can easily send 5.8-Billion-MYR market-capped FGV's stock price off the chart. The question is, would ValueCap do that, and why would ValueCap do that?

EOHKIS Sentiment: Sell

In my opinion, FGV's price has been fuelled by speculations for the past few days. Najib's announcement didn't solve any problems FGV is currently facing, that sent FGV to its 52-week low at 1.18 MYR. We shall see if there's a pull back in the near future.

Disclosure: The author has no position in FGV(5222.KL) and does not plan to acquire stake in FGV in the near future. This article is purely opinions of the author, whom should not be considered a professional financial advisor by any means. Please trade/invest at your own risk.  

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Original link: http://eohkis.com/invest/felda-global-ventures-5222-kl-mirage-in-the-jungle/