Gamuda’s Game-Over reveals Dark Side of Economy?



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Feb 25 2008
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Besides the hot topic on Malaysia’s 12th General Election which probably will be the most exciting election ever in the history of the country, the stock market is equivalent electrifying especially in the construction sector. If you think what I wrote about Gamuda and the chain of thought of foreign funds in selling without blinking twice was a joke, today’s stock reaction speaks for itself. That’s the reality you have to consider if your stocks are within foreign portfolio, and Gamuda is the second largest builder mind you. You got to play by the rule of the game, like it or not.

If you missed my previous article on how foreign funds or investors “behave”, you can click here to read it. How do I know the reaction of foreign investors? Simple – through experience in stocks investing and option trading, no crystal ball. It’s just like Steve Jobs selling off his major stakes in Apple Inc (Nasdaq: AAPL, stock) but maintain his position in the company. Put yourself in the investors’ shoes. What would you do? Can you think of a compelling reason why investors should buy or hold when Steve Jobs sold off?

Gamuda stock chartToday’s closing stock price of Gamuda Berhad’s (KLSE: GAMUDA, stock-code 5398) only goes to confirm that the game is over for Gamuda. In such scenario (the founder sell off in big wave), normally most of the researchers, analysts, investors and professionals would have a common stand – to SELL. First you have JPMorgan Chase & Co. (NYSE: JPM, stock) who cut Gamuda’s price estimate to RM3.30 from RM4.40 a share. Today Citigroup Inc. (NYSE: C, stock) has a sell rating on the stock justifying that the construction sector has peaked.

This disposal by founder and Managing Director Lin Yun Ling to some degrees also revealed the dark side of Malaysia’s economy, or rather the government’s economy policies. The theory is quite simple. If the MD is very confident that the so-called “Coridors” projects launched by previous (there’s no government now as the Parliament has been dissolved) Prime Minister Abdullah Badawi namely IDR, NCER, ECER and SCORE are real, the MD is definately mad and crazy to dispose of his stake now. Take SCORE for example. Just 1 percent of it will translate to a whopping RM5 billion. So why exit now? Being the person who has first-hand information he knows “very well” these projects, whether it’s for real or hoax.

Dark Side of Malaysia EconomyCould the ambitious development projects mooted by Badawi were just election propaganda and nothing but empty vessels? Could the real economy shows its real ugly picture after the election? Chart-wise, the stock is trading at the dangerous RM3.40 – RM3.60 a share level with very high selling pressure. It’s obvious the stock is fast losing its shine and the fact that it is trading below the 200-day moving average after broke the uptrend range means the game is over for Gamuda.

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