Incannex Healthcare IXHR ADR Wildly Different to IHL.AX Main Quote – Why?

Trade IXHL Shares Your Capital Is At Risk
Tim Worstall
Updated: 15 Mar 2022

Key points:

  • The US ADR for Incannex is trading wildly differently from the Australian share
  • This could be news flowing across time zones but that seems unlikely
  • It could be a very thin US market which will revert
  • Best Healthcare Stocks to Buy Right Now

Incannex Healthcare (NASDAQ: IXHL) stock, the ADR, is up 61% yesterday and another 100% today. This is wildly different from the performance of the underlying stock, Incannex Healthcare (AX: IHL) which is in fact up only 7% over the last trading session.

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Such a hugely different performance needs to be explained.

Now, it is possible that some amazing piece of news has arrived in between the trading sessions but that’s most, most, unlikely. For the price movement in the US was yesterday and today and there’s been that Australian trading session in between.

There’s also nothing on the Incannex website, no information releases to explain it either. The last is from last week and if that had moved prices this much then it would have moved the Australian as well as the American.

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This vast price disparity does provide something of a trading opportunity of course. Time zones do make it a little difficult but underlying stock is transferable into the ADR and vice versa. So, with good brokerage accounts at either end it should be possible to go long one, short the other – whichever way around is the “wrong price” – and lock in a profit. Well, maybe. For a private investor being able to make such a trade has its logistical difficulties.

We still want to know though why the price disparity. The answer might well be that the US ADR is pretty new, weeks old only. Trade in it is very thin – 10,000 volume for the last trading session on 14/03. That’s opposed to near 10 million on the Australian home exchange. If there’s one of those two prices that can be swayed by even modest buying it’s the ADR one, not the Australian.

Note that the prices should not be the same, for the ADR is a group of the AX shares. But price movements should be similar. Unless, that is, there is something interesting going on.

In the absence of full information, it’s impossible to say exactly what is going one. But a surmise would be that someone has seen that very thin trade in the US ADR for Incannex and decided that the price can be moved by some judicious buying. They might hope to create some momentum which they could then sell their holding back into.

There are impolite names for such behaviour and if that was indeed a plan, and the whole of a plan, then it often enough becomes illegal behaviour too – what is called a pump and dump.

But that is only a surmise. Without further detail from the company – or perhaps even the ADR depositary bank – it’s impossible to know. The ADR and the underlying should at least track each other in price. They’re not, there’s a wild disparity here at Incannex. That could be a trading opportunity but then trading without knowing exactly what the situation is is not a recommended activity.

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