There was a small article in the FIN two days ago that claimed...

There was a small article in the FIN two days ago that claimed that AFG had a high percentage of overseas hedge funds on its share registry. I thought this might explain some of the volatility of the stock, so I checked with Allco to see if this claim was in fact true. AFG investor relations told me that AFG did have a high percentage of overseas hedge funds on its registry in August, but they all started to sell heavily as the sub-prime crisis emerged (as the funds desperately needed cash). The panic selling from these hedge funds was primarily responsible for pushing AFG from $12 down to $6.50. According to Christine (AFG investor relations), these overseas hedge funds now make up only a tiny percentage of AFG's registry (most have sold out completely). While the need to raise cash explains this hedge fund selling, on the basis of AFG's fundamentals, this selling was somewhat irrational because AFG has no material exposure to US sub-prime, and has enough cash, affordable credit, and warehousing facilities to ride out any credit crisis over the next 6-9 months.

Furthermore, over the last month or so, according to Christine, Australian institutional investors have been selling because of the Rubicon deal.

So, as I now understand things, AFG's share price movement over the last few months has been primarily determined by two key waves of selling. First, the overseas hedge funds got out (as they got out of every financial stock around the world). THe share price then quickly recovered to $9.50ish in early October. But then a second more sustained wave of selling began by some Australian institutional investors (Christine wouldn't tell me who) because they felt AFG was overpaying for Rubicon (and, to a lesser extent, because of general sub-prime sentiment).

However, I was also told that very recently, a large overseas institutional investor (again Christine wouldn't tell me who) started buying AFG. I think it was this investor that recently pushed the SP from $6.50 to $7.80ish (Christine refused to confirm this). Evidently, this investor has now paused its buying (perhaps temporarily) and a few profit takers have come in. AFG's share price was also pushed around a bit yesterday because of some general negative banking sentiment arising from heavily selling in Japanese banks.

As evidenced by this large overseas insto now on the books, I'm not alone in thinking AFG remains a great buy. And perhaps AFG is now also a takeover target. (If this investor buys over 5% there will be an ASX announcement). Given that AFG looks like it will remain solidly profitable with healthy EPS growth next year, IMO the main thing that needs to happen for AFG to see $14 sometime next year (either by way of a takeover price or natural share price appreciation) is for the global credit crisis to ease.

With overseas instos now buying the stock (after overseas hedge funds have sold out), AFG is certainly one to watch.