Singapore Market: Olam Comes Back

The Cyprus debacle unsettled global markets this week with fears that a potential collapse of the tiny Mediterranean state’s banking system could revive a eurozone crisis that had been in quiet remission since last summer. The Singapore market did not escape the impact, with the Straits Times Index (INDEX: ^STI) off 0.8% on the week, but several of the major Asian markets fared substantially worse:


Weekly   Gain (Loss)

Price-to-Earnings   (Mar. 22)*

Nikkei 225 (INDEX: ^N225)



Hang Seng Index (INDEX: ^HIS)



Shanghai Stock Exchange Composite   Index



BSE Sensex



*Normalized earnings per share. Source: S&P Capital IQ

This week’s winner…:

The best-performing stock in the Straits Times Index this week was commodity trader Olam International (SGX: O32), which gained 5.5%. On Wednesday, the shares rose as much as 2.6%, crossing for the first time the price at which they traded prior to the allegations of Carson Block at an investment conference in London last November, when the short-seller criticised the company’s accounting.  Block’s firm, Muddy Waters, later published a report in which it compared Olam to Enron, the failed U.S. energy trader.

In the wake of these allegations, the share lost a fifth of their value, but they have since rebounded, as investors feel increasingly comfortable owning them once more. One of the major factors behind this reversal: Temasek’s support for a rights issue, as the state investment firm became the company’s largest shareholder.

In principle, Foolish investors should have no problem with short-sellers; in fact, they have a useful, even vital, role to play in capital markets. The best of them perform first-rate fundamental research and act as check on promotional, and sometimes fraudulent, managements. With regard to Muddy Waters, specifically, the company has had some huge successes, most notably with Sino-Forest, which ultimately went bankrupt. However, judging by the market’s reaction thus far, they are barking up the wrong tree with Olam.

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This article was written by  Alex Dumortier, CFA . Alex Dumortier is a contributor.