China Evergrande (OTCQX: EGRNQ) stock is up 19,900% on the OTC market. No, really, that’s a real price move. It’s also one that’s of near no relevance at all. For the starting price was, in fact, zero (OK, to be terribly detailed, EGRNQ stock was listed at 0.0001 of a cent or something) and there was a trade of some 17,000 shares at that price or thereabouts. This is therefore pretty much nothing at all to do with China Evergrande (HKG: 3333) or the prospects for the Chinese Mainland real estate market.
As we’ve pointed out before about China Evergrande: “The basic problem here is that without a debt restructuring the company is bust. As we’ve said before about China Evergrande: “Evergrande is at the centre of a real estate market crisis threatening the world's second largest economy. On Sunday, the firm posted a 33bn yuan ($4.5bn; £3.6bn) loss for the first six months of the year.” Even at 99% down it’s possible to view the shares as expensive. On the grounds that no one really believes China Evergrande is going to survive long term without some considerable capital restructuring. “
It is possible to have some fun (but this is betting, not investing!) in playing the China Evergrande Hong Kong quote. “China Evergrande (HKG: 3333) shares are up 28% in Hong Kong today. This follows their relisting after the suspension last week. What’s really happening here is that vies about survival are changing as varied fun and interesting stories hit the newswires. Some of them are important to the survival - or not - of the company in the traditional financial sense and others, well, perhaps they have to be viewed through a more political lens.” There idea that there’s going to be any terminal value to the stock should be classed as probably unlikely. But fun might well be had on the way there.
However, this is not the HKG stock, this is the OTC stock in the US. Which has next to no liquidity at all, as we’ve said about EGRNQ stock: “China Evergrande stock is up 150%. The stock rising this much could be considered interesting but only as a proof of the fact that some people will speculate - heck, gamble - on absolutely anything. It’s also an interesting show and tell of what happens in very thin markets. Because - and we agree that we might not have the right number of zeroes here - this could be the result of all of $25 (yes, that’s twenty five dollars) in trades. Which we would recommend as thinking about as a blip in a very thin market rather than an actual indication of anything grand or important.”
And again about China Evergrande: “China Evergrande stock is up 24,900% yesterday. Or, if we look at another listing and quotation, Evergrande is up perhaps 5%. Sure, there’s a time mismatch there but that really is a very different performance. So, what’s going on here? Shouldn’t both instruments trade in lockstep with each other?”
The US OTC stock trades perhaps once every few weeks at present. Therefore the spread on it is vast, from that starting point of fractions of fractions of a penny. So, each time there’s a trade the stock price moves by a vast percentage but it actually means nothing at all. Simply because there’s no volume of trade there.
