ALTHOUGH the argument may sound irrational, certain blue-chips appear to have a natural floor price.
When they fall close to such a levesl, those with a long memories spring into action with their buy orders.
Such price levels have nothing to do with the technical charts which some traders track carefully each day to try to gain a price advantage.
Recently, my colleague, Dennis Chan, wrote that in October, he had called up his remisier to make purchases of Sembcorp Marine at $1.10 if it should fall to that level, while he was in Japan.
His rationale: That was the price per share which SembCorp Industries had tried unsuccessfully to privatise the rig-builder in 2002.
Presumably, many other investors had the same idea. SembMarine briefly touched $1.15 that month before making a successful rebound. It now hovers around $1.50.
Yesterday, CapitaLand announced that it was raising $1.84 billion by selling a new share at $1.30 to investors for every two shares they currently own in the firm.
By sheer coincidence, this is close to the $1.10 listing price of CapitaLand’s predecessor firm, DBS Land, in 1987.
At the same time, its offspring, CapitaMall Trust, is raising $1.23 billion via a nine-for-10 rights issue at 82 cents a unit. The IPO for the real estate investment trust IPO in 2002 had been priced at 96 cents a unit – just fractionally above the rights price which investors are now required to pay.
Similarly, DBS is hovering around $8.25. This was incidentally the price which the stock had fallen to, during the Sars crisis in 2003, even though this is strictly speaking not a meaningful comparison because of the bank’s recent rights issue.
I suppose there must be similar coincidences which exist in other stocks. But you get the point.
Unless there is a major calamity – such as the one which has overtaken US financial institutions – some stocks do have a strong support at a certain price levels - determined by their original IPO prices, previous economic crises or otherwise.