Bull or bear, where market going to next?

As this juncture, the direction of the market is less clear to most of the people. Some are still fearful for the Europe problem or the double dip situation. They haven't happen yet, but there is still posibility.

As fundamental investor, I am less concern on the market direction. If you know the company you are investing in is doing well. Naturally, sooner or later, the share price will reflect that. However, I am more mindful nowadays on the market direction. I don't want to being caught off guard like the credit crisis time. There is no guarantee it won't happen again and you will escape unhurt, I think it taught me to be careful.

I recognize the direction of the market for coming 3-5 years is up. I am not so worried about the short term fluctuation. Again, there is no guarantee the market will definitely go up, but we have suffered for two years. It is time market adjust back to normal. Overall, I remain positive on the general direction.

I bought C&O Pharm before the dividend go XD. The key selling points to me are
China Pharmaceutical sector is going to continue to do well
The valuation in PE term is not high after you discount the dividend amount
The cashflow is strong and they are likely to keep paying high dividend
There will be new product launch which can open up new revenue stream

Soon, market will forget about the 4 cts dividend it paid out and re-adjust back the share price. The business is stable and has potential to do well in coming years. Giving cash back to share holder also signal management confidence in the company.

The other stock Longcheer I bought months back had a buy call from DBS. The stock is cheap, by any measure. The PE is low, business doing well in and outside China, giving good dividend, they are doing share buy back. The only potential downside is handset design business is very competitive and it might turn quickly. Keep the finger crossed that it is going to do well.

What is market direction?

Reporting season is in focus now. As we can see, the result didn't disappoint, it is sort of confirm that we have indeed turn a corner. Even the Greece news failed to trigger more downside. Of course, the risks are still there. But I sort of feel that, the liquidity out there is huge, still searching for value from every drop.

We are not sure how Europe problem will turn out, but I am kind of optimistic still. Waiting for the occasional bigger pull back to buy my favourite stock.

My Feb view

Expect the unexpected, I guess all the investor should aware of this. Just like we are roaring ahead with the new year. Obama's proposal to regulate US banks and potential China tightening have brought the long overdue correction.

The once high flying IndoAgri food and Wilmar crash back to earth from recent high. Second and third liner are even worst. The position that I have built slowly over the past few months is like back to square, some gain, some loss. However, I remain optimistic, regardless of the fear and rumour around.

This is going to be Asia golden era, at least for the next 10 years, this is the place where the growth will be. US consumer will not recover just yet, until they build up the saving and correct the excess. Asia governments will continue to stimulate the domestic consumption to counter the decline of export sector.

I continue to like China consumer play, but I will not go into stock like China Hongxing until there is clear sign of trend reversal. I bought the stock which continue to grow despite the downturn. I think it is ok to pay a little bit for the quality and spread the buying through a few months period. Whenever there is a market weakness, buy a bit. We have yet to see the bull market go into overdrive. So, those with holding power can afford to wait.

China should still be the centre of growth. Focus on those China stock which have only domestic market exposure and unlikely to be affected by the macro economic outlook. The offshore sector also looks good to me, since the oil price is back to $70 which should support the exploration activities. Another theme which worth a look is Singapore property and tourism revival. As Singapore transformed into new playground for the rich, the demand for property and luxury goods will increase. Time will tell whether I am right.

Market weakness in October

Last Friday, US market dropped again. The new set of numbers do not look good, especially unemployment rate rose. This could be the trigger point to a mild correction which bring all the market back to ground. The market rebounded from Mar low base on the green shoot theory, but economy recovery would not be straight line most of the time.

US numbers
The numbers do not look good. After the financial and subprime crisis, the American is unlikely to go back to old way of spending. Now thrift is the in thing among the people. This would means the demand is unlikely to pick up fast enough for us to return to strong growth. Other countries need to participate more in the consumption to drive growth.

V or W shape of recovery
The stock market looks like recovering in V shape but many suspect it would be W instead. That means the current market euphoria is on the basis on growth coming back next year. Some say this is just inventory restocking, where demand comes from under supply. After the restocking, the demand is unlikely to catch up again.

Local stock market
Many think that the market has run far ahead. Due to the huge cash waiting at the sideline, we saw a continuous strength of equity. You see, market is all about human psychology. If more and more people believe that the market is overvalued, they would find excuse to take profit and wait for better entry point. This couple with the traditional weak October sentiment, we could see some healthy correction.

I see the crisis is over but the growth is going to be slow in coming years. Depends on the correction, and oppotunity, there would be some bargain that worth the risk.

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.

Stock market set to be more volatile ahead of swine flu

Seriously I have never heard of swine flu before, but now it is a buzz word. Getting more attention than the Geylang Serai food poisoning incident.

What we are facing now is like a combo hit. While the market is still haven't recover from the credit crisis, the flu pandemic would wreck havoc in the world again. Potentially the stock is going to drop a lot once it become wide spread. The strategy now is still sitting at the sideline.

Ox year investing

While we were busy celebrating the Ox year, the news was busy reporting retrenchment news. It looks like the economic and business is going to get tougher in coming months. I expect the subsequent 6 months, we would have more pain. Consequently, stock market might have room to fall further. Somebody say he see no light at the end of tunnel yet. So, this is not the time for bargain hunting.

During the holiday, I also took time to re-read the book The Warren Buffett Way. I think every time we read a book, no matter how many times we have read, we stand to gain something. It kind of remind me of the fundamental principle I am trying to practise till now. People are fearful now, shouldn't we be a little bit greedy? Of course, this is not ordinary down time, we are in a serious crunch time. But once the strong company get over this, it would perform you in recovery time.

So, now is time, to read your books and further affirm your investment principle and strategy. Zoom down on your watch list, get it ready and finalise your strategy. When to strike and how to strike?

2009 stock market outlook

Before I start writing this post, I was reading some articles and comments on the year ahead. Usually, at the beginning of each year, investor would do some reflection and try to position the portfolio for the coming year.

The consensus now seems to be the earliest recovery would be on second half of 2009.

Would it recover by 2009?
This is a really big question. Just like we don't know the danger ahead until we encountered one. Similarly, we are not so sure whether the recovery would happen this year. However, looking at the economic numbers and analysts comment. The sentiment or real picture is actually quite bad. One fund manager mentioned he mentioned seen a bad cycle like this.

I guess we can take cue from this. The earliest time the economy would start to recover seems to be 3Q onwards. However, I am not so optimistic. Just like they mentioned, the problem is quite serious. It would take sometime for the de-leveraging to flow through the economy. This year most likely would be a lost year again. The real recovery would most likely happen in 2010 instead. Year 2009 should be a year of consolidation.

Volatility ahead
Should investor stay sidelined? It depends on your strategy. Many believe we could still have bear rally. Just look at what we had for past few weeks. Few piece of good news could cheer the market up and market picked up. Soon it run out of steam and consolidate. One who is able to constantly monitoring, could use this pattern to have meaningful trading. Since the stock price is "low enough", if you get caught, can still wait for longer term, provided your trading base on fundamentally strong company.

Next checkpoint
Company result would be out Feb or so. Maybe by that time, we shall know the degree of problem and we can estimate base on that. Surprises abound, long term investor better keep the eyes open. I would prefer to take another closer look at Q3 to see whether economy is showing sign of recovering and make my decision. Meanwhile, the extreme swing in the next 6 months, might be worthwhile to pick up some real bargain. Because when you are certain recovery is on the way, the price would have already come out of bottom. Averaging is a better investment strategy at this time.

Massive China $600 bil stimulus package

China just announced the $600 billion economy stimulus package. This is quite a big surprise to everyone, I think. Not long ago, they are still trying to control the inflation, now it is a really massive stimulus package.

The purpose is to increase the domestic demand, in order to offset the slow down export sector. The aim of the package is quite clear, but the details are not. It is really a massive amount of money. If used at the right place, it is possible to really spur the internal demand.

Spending on infrastructure and rural area has a long lasting effect on the overall demand. But, whether it is too late to prop up the demand remain to be seem.

Of course, this is good for China stock. Especially the infrastructure stock like MIDAS, property stock. Consumer stocks were also get the benefit. Avoid the export oriented stock.

Reflection on the financial turmoil

For the past 1 year, the global financial market was in turmoil. Now, it is still very unstable. It started as an US problem and later the contagious effect spread to the whole world.

It started long way back when US housing market was booming. The bank packaged many creative product like subprime loan. Financial institution lend to those without good credit record, package the loan into securities and sell to investor. When the subprime borrower default, it cause ripple effect on financial market.

Bank bought those subprime product suffered big loss and need to recapitalise. Housing market slump and cause more borrower to default. Credit become precious and banks became careful in lending to each other. The lack of credit would choke the economy and this became a very serious problem. When the banks are not functioning, the economy is not functioning.

The main problems are credit crunch and mortgage base asset losses. Housing market suffered and economy outlook looks dark. Therefore stock market keep plunging, in sync with the outlook. It is like a vicious cycle, the falling asset price cause more loss and in turn cause asset price to fall further. We are at the so called de-leveraging cycle. It is very painful to unwind all the credit in such a short frame of time. Because of the weak outlook, the commodity price - hard or soft is coming down. As the investors turn risk adversed, attention is on gold and this is the only asset where price is going up.

The cyclical industry turns down first – properties, shipping etc. When property was hot and money is easy, when the foreigner are buying high end property like no tomorrow, analyst keep adjusting their forecast and target price. The ever surging commodity price – oil, palm oil, soya bean, corn, iron ore cause port congestion, analyst foresee a long time boom, thus shipping stock flying high. Look at what happen to them? Analyst forecast is usually too reactive.

Now, the construction is not doing well. Financial stocks which are tied to the health of economy are coming down. Consumer stock is also expected to be affected because of the spending slow down. However, China didn't show sign of slowing down. I read today's chinese newspaper, the China consumer is much insulated from the external shock and is still spending. The China consumer stock might be more resilient than what we think. The defensive sector are telco, consumer staple, transport and monopoly. Since no matter which cycle you are in, you still have to use their service or products.

• Watch out for real bargain. Company with unique competitive strength and brand, is able to survive the bad time should come back stronger.

• Avoid cyclical company, especially those with analyst downgrade. It is hard to swim against the current. Only exception is you have strong belief in your stock picking skill

• Avoid the company with high gearing. This is usually my key stock selection criteria and it save you during the bad time.

• Avoid buying too soon and too much. Wait for the sky to be clearer and the financial market has really stabilized.

• Think independently, but don't lose sight on the economy implication and what others are doing.

Lehman and Merrill Lynch in trouble

The shocking news today is Lehman to file for bankruptcy and Merrill Lynch to be bought over by Bank of America. The wall street fear has became a reality and financial market keep tumbling. It looks like the credit crisis would deepen before it gets any better. Before the light at the end of tunnel is sighted, stock market is going to fall whenever there is bad news. It looks like a knee jerk reaction now. The Asia market is reacting to US market news more violently than US itself.

At this juncture, the market direction is unclear. We are at the unique situation now, which Greenspan said is a serious crisis. As we don't know how worse it could go, holding back any buying decision seems to be the only wise thing to do now. Cheap could become cheaper, remember. There are still things you can do. Brush up your investment skill by reading more books and perform some reflection on your investment decision. This would aid the future adventure.

There are many short sellers out there who short on any bad news that come out from the US. I met an ex Uni friend who does regular trading. He mainly doing shorting now. That could explain the increased volatility we have witnessed. The problem with trading is not a few times of continuous win. It is the challenge of doing it right most of the time. One big bet that goes wrong could bring you back to ground.

I am also taking my time to go through my existing holding to eliminate the weak performer and search for future strong performer. The good part about bear market is you can take your own sweet time to do research and you are buying on cheap, if not, super cheap.

Trapped in bear trend

The US financial sector is in serious turmoil, because of the excess built up over the years and the creative bankers. When sub prime issue first came into picture, nobody expects this bad, or at least not the man on street. Now, it seems like the sub prime is only the trigger of the bear. We are not economist or expert(even the expert not always right), nobody could predict when it would end, earning downgrade is the in thing now.

The stock is now on fire sales, which is rare over past few years. The valuation is so depressed now, in my view, the risk of holding equity for a period of 3 to 5 years is significantly reduced. In fact, you have a high chance to make big profit (of course, not immediately). Financial market is a reflection of human instinct which tends to overshoot on both side - top and bottom. People still expect the equity price to fall, therefore there is no interest in stock. Hence, the forever falling price. Maybe 3 years later, when you look back, you would regret that you missed such a great opportunity to accumulate stock.

However, not all the stocks are equal, at this tough time, it is a real test to separate the boys and men. Look at the company competitive position, market leadership and future plan, to give a clear idea of whether this is a gem being indiscriminately sold down. Buy on cheap and wait.

The equity price won't stay at this depressed level forever, someday when the confidence return, the rebound could be significant. Although economy goes through up and down cycle, in the long run, economy is set to grow. Because the human population keep growing. Good company would earn more profit and stock price would follow.

Bargain is everywhere now. Of course, everybody is waiting to buy it even cheaper when it fall further. I am a long term China consumer bull, the consumer stock looks very attractive now. Even the blue chips are also selling at reasonable price!

Random thoughts on market 13 July

The stock market went from bad to worse. Dow dropped another 100 points and looks to break the 11,000 level. This was caused by IndyMac incident, a name you and I not familiar with. Could more write down on the way? Yeah, if the situation does get worsen, then it might just go a bit lower.

The valuation now has gone from overvalued to undervalued. People seems to have build a high level of risk premium in the equity price. You just find your stocks keep dropping day by day. But my gut feel is if we are not at the bottom, we should be near there. Valuation is at rock bottom and the Asia growth story is not going to taper off just like that. It is bargain time and refrain from buying too aggressively, because you might be caught off guard by more bad news. What I would do is just to wait patiently, and if it really get ridiculous, I might be going in again to grab some. Just make sure you are not going to use the money you want to buy stock in 3 years time.

The growth outlook just got a little bit dimmer. How much the earning would fall is anyone's guess. I have seen quite a fair bit of earning downgrade already happened. The once high flying stock was brought back to earth, follow by the market condition and analyst downgrade. The problem with analyst is they tend to magnify the stock price swing. However, that is their job.

Investors are not going to assign high valuation to even the great stock. So, tread with care. You look at Sino Env and Swiber, the earning outlook still look pretty robust, but the valuation has come down really a lot. Would the environmental concern in China goes away when US economy is down? Not likely. Would the oil major stop their exploration work around the Asia Pacific if oil price down at $100? Not likely. Having said that, high beta stock is not for the faint hearted.

Stock market roundup 29 June 08

Last Friday, Dow drop another 100 points. I am not Oracle, so not possible to predict the future trend and whether any turn around is inside. But, what I do believe is, we are in another cycle of pessimism. Meaning? It means stock is likely to drift lower further. Sentiment is very powerful in stock market. No matter how great is the stock, when the feel is not right, it would just go together with the general market.

Sentiment aside, the outlook has indeed turned dimmer. They are couple of reasons. Credit crunch (more financial write down?), fallen US dollar, rising inflation (commodity, oil). Maybe so much excess has been built up over the years, and we need a recession to correct all these? Hopefully the China oil price hike would help to trim the demand. Possible for them to curb the speculative oil trading? This is one of the suggestion they quoted, but difficult to implement in this free market. Everybody should cut down consumption, in order to control this.

I shall watch on the sideline, until things are clear. It is impossible to catch the bottom. But I do believe, the more it fall, it is good for long term investor. But, you really need to work hard, to pick the right stock.

Investment strategy for the second half of 2008

This is not meant to be a long analysis article. At the point of writing, Dow is down 134 for the Friday trading. If not surprise or bargain hunting, it would most likely ended the week at the lowest point. After the relief rally, the stock market is again focusing on the bad news. Credit crunch seems to be over but the inflation worry persist.

At this point, these are the most prominent worries:
- High inflation or stagflation which erode the spending power
- High oil price and commodities price which have cascading negative effect on the overall economy
- The falling US dollar which could magnify the effect of above two

This is definitely not the situation that we are hoping for. But, now is also one of the moment where you can pick stock bargain. Look at CMT, the largest REIT in Singapore, it has acquired the Atrium at Orchard to be linked with Plaza Singapura. This would certainly enhance the rental return even more.

So, don't worry too much, just focus on evaluating the company fundamental to pick winning stock. In my opinion, there aren't many more downside risks, and the reward is favorable for the long term investor. I am definitely looking at picking up stock in my watch list when they are on sale again.

In the second half of 2008, there is only 50% chance that market would start to recover strongly. We shall see better time into year 2009.

A relieved rally - Fed action seems to work?

STI closed at 3171 today. This week continue to be a relieve rally week. After hitting the lowest point two weeks ago, market rebounded. Stocks that were unloved and unwanted, are back in favourite now.

Look at share price of Synear as follow. You would have made 38.7% of profit.
25 Mar 0.49
03 Apr 0.68

Ben Bernanke hinted the worst could be over, there is unlikely a second Bear Sterns. Is the worst really over? We can ask two questions.

1. Would there be further write down or huge losses?
No one is sure actually. We are entering Q1 reporting season and shall know shortly. I suspect the write down would even stretch to Q2

2. Economy is going to be good after next 6 months?
The outlook is still uncertain. As stock market is the forecasting machine, unless the outlook is bright, we are not able to see a big rally. Because there is really no reason to be optimistic.

The steep fall of share price should be contributed by temporary drying up of liquidity across the globe. Fund redemption and losses in developed market cause the fund manager to pull out from Asia market. As the survey has shown, fund manager has increased the cash holding. They are unlikely to return so fast and retail investor else where need sometime to cool down before putting fresh money back into equity.

So, now is time to be pessimistic and defensive? I think not. The only way to make big money is to buy when no one else wants to buy. When you bought it dirt cheap, your risk is limited but upside is huge. This is on the basis of buying strong and growing company that would ride through this storm. I am hoping it would drop again, so that I can start buying cheaply. I am planning to purchase slowly when the stock suffer significant drop.

US recession fear

US recession – the most dreaded word in financial market now. The recent financial market volatility and little bear are all because of recession fear and the sub prime write down. According to Associated Press survey, 61% of the public believe US is already into recession since 2001. Economists are worried about the reduce consumer spending and investment which would push the economy into deeper recession. >> Zaobao story >> AP story

Until the picture is clearer, I think we are not going to see any significant rally. Once some bad news is let out, the market would fall further and follow by small rebound. Picking fundamental strong company and focus on internal/Asia demand is paramount in stock investing. Consensus is everything should clear up in second quarter.

For Singapore economy, economists still forecast Singapore would be able to obtain 4% to 6% economic growth. Minister mentor Lee Kuan Yew said that Asia won't go into recession, since China and India demand is strong and SEA countries economy also perform well.

Recent big investments in the island like new MRT line, integrated resort, foreign investment in chemical industry would create jobs and business opportunities. >> Zaobao story

Pick the companies that could benefit from the changing Singapore. Those like financial, construction, hospitality and retail stock could provide investor with respectable return.

2008 stock market strategy

I would like to examine the key issues in coming year and try to formulate the strategy for 2008.

Key issues

• Sub prime problem. It is expected that more sub prime borrowers would default. The housing slump would continue and credit crunch would persist. Credit crunch because those financial institutions who might have potential more write down would be reluctant to lend money. Insufficient credit would hurt the economy. It might take another 6 months for the sky to be cleared.

• Slow US consumer demand. The rising inflation, high oil price and housing slump would surely hurt the consumer demand.

• Oil price. It might go up a little bit more, if tension at middle east escalated. However, I believe the downside probability is higher.

• Commodity price. The price should soften if the US demand slowed, which is a good thing for everybody.

• Direction of US economy. We have the sub prime problem, slow consumer demand. But, would the recession come? Analysts have different view. Some say US could avoid recession because Fed would keep cutting interest rate. Some fore casted a mild recession. I think the downside surprise risk is higher.

• More bank write down. Goldman Sachs mentioned more write down expected from Citi, Merrill Lynch and JPMorgan. Every piece of bad news could rattle the market for a short while.

Trend

• China QDII flow. It has been discussed for quite a while. I believe it is a sure thing, except the time line is unknown. When the time comes, we should see smile on everybody's face.

• Sovereign wealth fund. The SWF by Asia or middle east country would keep the investment momentum. Whenever there is trouble in US financial institutions, they would come and pump in the money.

Market characteristic

It is going to be a volatile year. For some of the key issues, the consequence/resolution is unknown. We don't know how things would pan out eventually. We should see market movement base on news flow. As a fundamental investor, consider to add small position in your favourite stock if valuation become attractive and you haven't hit the allocation quota. Don't trade if you have no time to monitor, because sudden news flow would cause the market to move in different direction.

Strategy

• We are unlikely to see a broad base rally, until the sky is clear. Focus on the key individual company development. Company that shows a sustainable earning growth should hold up well.

• Focus on stock which rely on domestic demand, not export.

• Focus on strong trend and have a longer investment horizon.

• Keep your stock exposure at 50-70%.

• Be patient and have discipline

• Get out of over valued country, where everything is expensive. (For example, if you are holding the India unit trust)

• Avoid catching commodity linked stock at high valuation. Stock like Wilmar would suffer if oil price drop which cause CPO demand to cool. It is a strong cycle, but we are not sure where we are.

Merry christmas & new year outlook

Wish everyone

Merry Christmas and Happy new year.

According to Hong Kong news, Andy Xie said Asia market would still do well in 2008. It is possible for HK market to fall up to 20% in coming few weeks and Asia market might start to rebound from Mar onwards. The consensus from analyst is Asia stock would rise in the coming year.

During the holiday season, market activity should be minimum and expect low volatility. On the first trading day of the new year, I would expect general market to go up baring unforeseen bad news.

Today, I read The Edge article on the Jim Roger's new book "A Bull In China: Investing Profitably in the World's Greatest Market". Just as he is a commodity bull, he is also bullish on the future of China in 21st century. >>Source

Me too, since I started investing. I own China unit trust and stock listed on SGX. It is a long term play, but please be mindful of the risk involved. A good way to diversify is just simply buying a China unit trust!

2008 stock market prediction

Everyone loves prediction. We like feng shui, horoscope and fortune teller. Yet in investment world, no guru really can forecast what would happen one year down the road, not even a week. Having said that, as we are going into 2008 pretty soon, I would like to “predict” what the next year would be.

2007 was a good year, if not for the sub prime problem to spoil the party. Everyone was earning big bucks, when the financial tsunami came. Going into 2008, I still think that stock would be up. Be it US or Singapore. Following are the drivers.

1. US president election year

   During the election year, they would try very hard to prevent the market sinking. Thus, for a very high chance, stock could be up. Although it is unlikely to be another super bull market.

2. Sub prime crisis ends

   After the recent big write off by banks and more confession coming up, I think the sky is clearer now. Market has also priced in more bad news. So, once most of the bad news were over, we can see stock recovering.

3. Oil price trend lower

   It is close to $100 now, I know. It might reach 110 or 120. But, after that, what next? The growth would slow next year. The demand is likely to come down. Saudi or OPEC won't want the super high price to dampen demand and would react if it is too high.

4. Global growth still healthy

   US is slowing down, but the whole world still growing nicely. China keep booming and they would help in absorb some demand.

I hope 2008 would be another positive return year for stock. May all the investor find wealth and happiness. HUAT ah...