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Why Such A Big Discount For Ekovest-WB

It will be expiring within a month as shown in the circular. 25 June 2019 to be exact. However, the warrant is trading at a 3-4 sen discount, which is hefty considering there is still the leverage effect. Some might say that there is a negative sentiment prevailing, hence, the discount. Well, yes and no, there are always arbitragers ~ you buy and convert immediately and then sell, better still if you can borrow Ekovest mother share to sell first to lock up the difference for no risk return.

There is usually a few days to one week lag between the conversion and actual crediting of shares. Mind you, the last trading day for the warrants is 7 June and not 25 June. Even so, the discount is a bit much.

Herein lies the difference between beginners and old hands. The savvy ones would know all the prior announcements and would know that there is a 10% share placement underway. The thing is, we do not know when the placement will be done. Once it goes ex-placement there will be a 10% downward adjustment in the share price.

Looking at that scenario, buying the warrants now to convert would be of high risk as you may fall in between the placement and the time you actually receive your shares. The only buyers of the warrant should be those who can/have borrowed the mother shares to sell to lock up the difference. Otherwise, it is highly risky on the downside. 

Market Outlook

It looks increasingly likely that the trade war dispute won't end anytime soon. The impetuous bravado by Trump means that he of small brain and hands will not back down soon. However, China has an upper hand in that Beijing does not have an election within 18 months. Already the farmers and the Midwestern belt of support has started to wane considerably. Soy beans plus rare earth (and potential banning of IPhone sales in China) most certainly would put a lot more pressure on Trump.

Their next meeting is the end of June. Until then, there is not much point to trade the local markets. However, one can easily consider corporate exercises of good companies, which to a large extent have a life of its own: cement mergers; Supercomnet bonus exercise; AirAsia special dividend; and ECRL plays buy on weakness.

The danger is not how long the trade war will pan out. The danger is major markets seem to be still not discounting sufficiently for the possibility of a protracted trade war. Just look at VIX indicator, a major risk and volatility indicator that did not show much volatility over the past few weeks - and that is worrying.

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