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Puzzling "buy'' call after SGX's Trade with Caution

Phillip Capital this week issued a "buy'' on Chinese department store operator Zhongmin Baihui Retail Group with a target price of $1.73, which is the level at which the stock traded just before SGX issued a Trade with Caution five weeks agon on 5 Feb.

In its TWC warning, the exchange said the price had remained steady from 26 Oct 2015 to 4 Feb 2016 and that a small group of individuals accounted for more than 90 per cent of the on-market buy volume, a group which appears connected to each other. Predictably, the market responded by selling down the shares, from around $1.73 to a low of $1.25 on 11 Feb , after which volume - perhaps understandably - dried up almost completely. The market's reluctance is probably because SGX in its TWC added the statement that it is "reviewing the trades and will take the necessary action''.

Many observers have therefore found the "buy'' recommendation puzzling, as there was no mention of the regulatory cloud that hangs over this stock. My colleague Melissa Tan has written about this in today's BT in a story titled "'Buy' call on Zhongmin Baihui despite TWC advice'' in which she quoted Phillip's head of research saying that since ZB's chief executive bought 500,000 shares on 20 Jan and because ZB is thinly traded to begin with, then this could "reasonably cover'' SGX's warning. This however doesn't answer who were the  "small group'' of connected individuals who were generating 90% of turnover for the 14 weeks that SGX referred to in its warning. 

The market hasn't reacted to the "buy'' report - when I checked this morning, there were no trades done, and the bid-ask spread is a massive 72cents - $1.43. In fact, only 300 shares have traded this week - all on Tuesday at $1.43.  I'd be interested in knowing if that trade was performed by the small group referred to in SGX's TWC. 

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