Is Best World International Still The Best Of Both Worlds?

It fell like a pack of cards; it turned soft like Roti Kaya bread dipped into a cup of piping-hot coffee. But the taste of Kaya and butter spread melting inside the coffee concoction can taste heavenly.

From a high of $1.62 on 7 August 2017 – two days before we celebrated National Day – the share price of Best World International Limited (SGX: CGN) started correcting.

On the charts, it was a classic double-top formation where the first peak was formed on 8 June 2017 when its shares traded as high as $1.605 followed by the formation of a second peak on 7 August 2017 and a confirmation of a double-top formation.

China phobia is real

There were signs that buyers were bargain hunting when the share price started to fall, probably in anticipation of a set of sterling results to be announced. But, like plenty of China-based companies and companies that derive the bulk of its revenue from China, investing in the shares of such companies is tantamount to treading a minefield although the rewards are mouth-watering.

On hindsight, can anyone resist a China-led growth story that pushed its share price from a low as $0.60 back in December 2016 to $1.62 in a mere six months?

Yes, the business is legitimate and the growth story real but local investors continue to be haunted by investing in S-chips or China-related growth stories because these companies have a tendency to drop a bombshell just out of the blue.

Earlier on, even shares of STI-component Yangzijiang was not spared when its Chairman Ren Yuanlin was alleged to have conducted “misdeeds” that were false. The share price of the China-based shipbuilder tumbled 11% in a single day.

Best World International got implicated

Now, back to Best World whose share price tumbled from its closing price of $1.54 on 14 August to as low as $1.22 the following day.

What’s the story?

It all started with a Bloomberg story on 15 August titled “Herbalife, Nu Skin Shares Plunge Over Fears of Chinese Crackdown”. The so-called crackdown was in response to the drowning of a student who fell victim to a pyramid selling scheme, which triggered a selloff on all stocks related to “Direct Selling”. So, very unlucky for companies that are listed and are in this industry! Best World, included! Sigh!

Best World then went on to explain that although it holds a direct selling licence, the companies has yet to convert in business in China to direct selling, and that its products are sold through outlets and workshops. Therefore, it is legal, not shady and definitely in line with PRC laws!

Still best or not?

What does a PRC con job has to do with Best World? Maybe to a certain extent, clients and customers in the direct selling business may be wary of such business models but Best World is LEGAL hence, there is no short-term impact because Best World is not yet in the direct selling business although it owns the licence.

When stocks are wrongfully punished without a deterioration in fundamentals, sharks smell blood when blood is spilt. Investors have got to recognise a bargain when he or she sees one.

But still, we have to ask a very important question that is beyond roti kaya and kopi siu dai: Should companies and regulators halt the trading of shares when unfounded allegations/rumours pertaining to the company and/or the industry that it operates in surface?

Must protect poor retail investors lah!

Upcoming Event

We managed to invite a few popular names in the finance and investment education world to speak at our upcoming Shares Investment Convention on 16 September 2017 (Saturday)!

They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your early bird tickets. See you there!