Celestial, no more in heaven

The eventual has happened. The bond holder is calling for redemption and the group issued the statement that they are unlikely to be able to meet the obligation.

It is quite unfortunate that a company with a well known and growing brand, ended up in this kind of situation. The problem started when a small company is trying to expand rapidly and borrow aggressively. The convertible bond was issued with early redemption option, when people don't expect the bond holder would ever call for early redemption. You never know, when crisis strike.

This highlight the risk with small cap stock. The company is small, so you can afford to grow quickly. But, at the same time, the more leverage you have, it is increase the risk. Compare a company with little borrow, you know which one is more stable. Therefore, never bet big on one single small cap. You never know what would happen next.

There could be three outcomes

i) a white knight is willing to acquire shares in the company and the proceed can be used to pay the bond holder
ii) the bond holder is willing to receive the share in the company
iii) the company has to wind up

i & ii should be more likely. But that would dilute the existing shareholder's stake. iii is the unthinkable, you can kiss goodbye to your share.

At the cross road

Recently, the market has ran up quite a fair bit and set to correct soon. The optimism comes from the fact that some indicator is turning up and investor who is itchy for some actions all jump into the bandwagon. The million question now is whether this is a bear rally or sustainable recovery?

I read a lot recently, about the various expert's view and research report. Just like the expert didn't forecast the severe downturn we are having now, the opinion now is also divided. Some say we are poised for recovery, some say beware.

I recognised that the "very worst" might be behind us now, because the credit is flowing again, albeit slowly. We saw many S-chip belly up, due to the worsening credit condition. Share being forced sold and growth went into negative territory.

It might be a good time to slowly adding some risk into the equity portfolio. We should buy when market correct each time. Avoid chasing the rally. Because I don't think the confidence is fully recover and everybody is ready to jump into equity. Mark Mobius said we would start to see another bull run, government is printing money which would cause inflation, stock is going to do well. This is true in certain aspect. But, there are many variables could delay the recovery.

Jim Roger said buy commodity and china share. Maybe I would add some exposure to commodity linked stock and my usual favourite, the china share. There is a commodity ETF on SGX also which can be considered.

Finally, nobody has the crystal ball. You can have your opinion, but the risk abound. Play carefully. Stick to big cap, more stable and the first to rally when recovery materialised.