Market might just continue the slide next week

Last Friday, Dow dropped another 100 plus points. The bad news is one after another. After the strong rebound last year, we are hitting the first speed bump. No one could tell how the market will play out.

1. China cramp down on property speculation. Although in the short term, this has dragged down the market performance, but it is an essential step for China to prevent the price bubble. Some might argue it is already in the bubble stage. I don't think China government want to kill the growth and market. We just need to cool it down.

2. Greece chaos. It will take sometime for them to find the solution, instead of dragging on the problem

3. Dow plunging 1000 points. Common sense tells us, if the situation is too extreme, it might not be true. Be it computer error or human error. Although confidence shaken, market will take sometime to recover.

China problem is unlikely to slow down the whole economy, as the authority doesn't want to kill the growth. The Europe problem takes time to sort itself out. In the mean time, market will keep sliding, I guess. The long awaiting opportunity has come, I hope you have spare cash.

I don't think the double dip is going to come, unless the Greece debt problem has contagiously spread to debt market. Even that is true, I doubt the magnitude will be the same like sub prime crisis. For the value investor, time has come to pick up great stock selling at cheap price. Investor should focus on stock with bright industry prospect, cheap valuation and strong balance sheet. When situation improved, stock will move up again.

Charging ahead

Stock market is back in active mode where the volume is high. Blue chips again leading the pack. There were few good news from US, especially news like US consumer is spending again will boost the sentiment.

In fact, everybody believes that we are really in recovery mode. There will be no double dip in US. The outlook is sort of clear for the stock market to get higher. Understanding of the way recovery happen is important. That provides idea for stock that will benefit from the recovery. Stock selection is the key to a good performance.

I bought NOL, since the shipping outlook has improved and once the international trade increases, the stock should recover. I have built up some holdings which I believe will have bright future. The rest is to wait for the time for them to perform.

Small cap in focus

I have been reading many commentaries or view that small cap would be in play for coming weeks. So far, the recovery in earning has not disappoint. The correction is also moderate. The big caps are mostly well priced for the growth. Naturally, the attention will shift to mid and small cap, where the valuation playing catch up.

Market move through cycles. When the recovery start to take place, blue chips will run first, and subsequently the mid and small cap. Because only when the economy is in more stable stage, the smaller company will experience the earning growth again. In the mid, small cap space, there are still many undervalued companies which offer low PE and higher dividend yield.

I hope it is time for the stocks in my portfolio to start performing.

China Sports Intl stir up the interest

China Sports has announced the win of master distributorship of FIFA football lifestyle clothing and accessories. This look like a significant win, analyst quickly upgraded the stock. The interest is high and stock price move swiftly. FIFA is a significant brand, this signal the intention and capability of the company


At the sametime, this has a spill over effect on China Hongxing too. Hongxing up with large volume. Recently the market focus on mid and small cap. Especially the forgotten S-Chip with story like dual listing and privatization coming out. These are just speculation, but it helps to normalise the valuation of the stock. The depressed price offer a good opportunity to investor, but on the other hand, not attractive for company to raise capital.

The bull market has moved to second phase, where interest focus on mid and small cap. Once the interest is changed to junk stock, you know it is time to sell out, waiting for correction.

My quick review on 2009

Year 2009 was a meaningful year for Singapore stock market. In the first 3 months of the year, market continue to drift lower. Basically, I was not in the market at all, watching from the sideline, hoping to see the light at the end of tunnel. Nobody knows, stock market took a dramatic turn since Mar and has never look back.

I missed the chance to make some sure win money. However, like I say always, nobody can foresee the top and bottom. It might be better to wait for definite signal of turn around. Beside that, bull market would not move in straight line. Investors have many chance to get back into the game. The continuous strength of stock market surprised many people. This was supported by steady stream of good news.

Since September, I am back in the game, bought some counters that could offer further upside when economy growth returns. Despite the China stock market has gone up substantially, S-chips are still being ignored by investor. Many small cap stocks are simply not in the investor's radar. I bought into Hsu Fu Chi which turn in very good result despite weak consumer spending. The stock is no longer cheap in PE terms. This also shows market pay premium to good performing company.

The property market in 2009 surprises me and many property stocks have recovered since then. Going into 2010, I believe in what analyst said, the high end segment is going to do well when IR open. Thus, Ho Bee is my choice. It has exposure to Sentosa Cove, joint venture plan with Yanlord in China and good cost control.

Oil and exploration market also spring back to life, as oil companies increase the offshore activities. Swiber coming from the low base, having remain subdue for a whole year, finally wake up as more contracts are being awarded. The stock might trend higher as each contract announcement unfold.

Caveat to investor. 2010 has more surprises in store for us. Prepare to sell when valuation has gone too far. However, the liquidity built up over the past two years might keep pushing the stocks higher, until a tipping point where significant correction would set in.

Dubai triggers the correction

Last Friday, Dubai created wave in financial market by asking for loan repayment extension. Market suffer a knee jerk sell off, many of the European bank are being affected, because of lending money to them. The debt amount is staggering.

Compared to last Friday sell off, STI only suffered a bit. The market player properly figured out Dubai is not US. Only stocks linked to the middle east likely to be impacted. However, this could be the trigger point for a meaningful market correction.

Those with cash should start looking to add position. Growth likely to be muted for US in coming years. The future still lies with China. Should add good stock which could ride on China wave.

Genting Intl right issue

Those chasing hot stock should beware. The pattern is too common already. First, some news being released cause sharp run up of share price. The next moment, company announce share placement to raise more money. Many has done that to raise capital for growth or to prepare the tough time ahead.

Genting has debts to fund the expansion and new casino, but the cash hasn't roll in yet. In the analyst forecast, there are just too many assumption which when things go wrong, the share price could see sharp correction. But, human is animal of hope, only story could get people excited.

Weak Sep and Oct

Traditionally Sep and Oct are two weak months for equity. The situation took a turn at Mar, market trending upwards. The easy money has been made and I missed the boat. Never mind, the economy might recover some what. But, the old growth would no longer be back. American is not going to spend like last time and it would take a while for the next demand to come on stream.

I am looking at adding some equity position if the stock did pull back during month of Sep and Oct. The key thing to do well in this mini cycle should be riding on correct stock. Stock that is not exporting goods to US but meeting the demand locally or across Asia.

Downward drift

Market has priced in too much optimism already. Ahead of the Q2 earning season report, the market is set to fluctuate in tight range. Once the earning disappoint, it could correct significantly. Then, maybe it is good time for those still holding lots of cash to enter. Of course, many people have different opinion towards the market and stock price. For me, if it is a little bit expensive and the situation is unclear, I don't want to be caught. I just wait patiently.

Recently, MIDAS announced quite many contract win. I think this is a result of the China railway network expansion policy filter down to the ground level. I am quite bullish on the railway sector. It has nothing to do with export and US consumer. This is government money and they are determined to spend it.

Why the rush of placement and right issue?

The sentiment has improved dramatically. Many people buy into the green shoot theory or just not wanting to miss the boat. But is recovery clearly in sight? I viewed the worst is over, the credit market has unfreeze, but the recovery is not clearly in sight. US consumer spending still weak and unemployment is high.

As more people has higher risk appetite, this is a perfect time for company to raise money by placement or right issue. Why? Simply because, if we are going to trend down in next 6 to 12 months, at least the company won't run out of money. Some even plan for expansion, using the current low asset price to buy growth in the future.

The market has peaked, any bad news which dash the hope of green shoot might cause the institution to start selling and lock in the profit.

S-chip in a mess

I was quite busy these few months, didn't finish the company result analysis. I guess it is still alright, since the economy would only get worse, not getting better. So be it, what have been stuck is already stuck.

The recent news on Sino Env and Celestial just highlight to us again, the corporate governance issue of SGX listed China company. I think investors have doubts on the China company partly because we didn't really see the real business and we didn't really know how they do their business.

Sino Env went down because of the Chairman problem which could potential create a share over hang. Time is bad, if you are over leverage personally, it is a risk. Celestial wise, if I read correctly, is the convertible bond come calling. Actually I never expect them would be in this stage. Since the company is government supported entity, I guess it should run "correctly". But never say never. Figures I don't have. I just hope it can pull through the refinancing.

What has been taught in tex book is correct.
1. When you use debt, you enhance the shareholder return, but you also increase the risk
2. Small cap is more volatile, since there is limited resource available to them

Don't put all your money in small cap only. A certain level of diversification is needed, no matter how good the company is.

2008 stock market in review

Year 2008 is a remarkable year for people around the world. We experienced many significant events – Beijing Olympics, US president election, Poison milk powder, Financial melt down etc. To stock investor, it was really a bad year. Can you imagine at one point STI was close to 4000 points? One year of brutal sold down erased many years of gain.

What happened?

The storm started way back in 2007 with US subprime problem. Before that, who on earth outside US knows what does subprime means? Subprime itself is only a trigger point to bigger issue awaiting the world. The US is over spending and came to a tipping point where the unwind has to be done. On hindsight, we should have sold all our holdings and keep cash, but again who knows?

Subprime is only an element in the complex web of problem. The key problem is over leveraging. US keep issuing bond, China keep buying.This keep US consumer spending, and China factories running. Bubbles all over the place – commodity bubble, hedge fund bubble etc. Many financial instituion bursted and credit is hard to get. World is now in recession.

We should treat this as lesson and not to let it happen again.

The situation now

The worst is not over yet. Majority of the economist forecast further contraction. From what I have read so far, nobody seems to have idea when we would be out of wood. 2009, most propably would remain anonymous while the economy is trying to pick itself up. Expect more job cut and bad headline every now and then. The problem is in this kind of environment, people would refrain from spending.

Many people are actually still doing ok. But, because of the headlines, they would cut back on their spending too to prepare for the “worst time”. This would accelerate the recession.

My portfolio

On hindsight, I should have cut main bulk of my portfolio to preserve the capital. However, as a long term investor, my mindset is really focusing on “long term”. There would be a need for me to re-think this idea and see whether this still applicable in Asia context. Anyway, the damage is done, we can only wait for the next upturn patiently.

Purchase of the year

Due to work commitment and the bad new headline everyday, I really didn't pay attention to the stock market. I did my small purchase when I thought it hit some sort of bottom. How wrong I am! There waves and waves of further sell down. Anyway, they are for long term – FJ Benjamin and China New Town.

FJ Benjamin is an attractive option to participate in the Singapore tourism boom. Come 2010, there are new selling points for Singapore. However, before that materialise, the current economy situation has already hit the retail sector. Never mind, when the economy recover, hopefully in 2010, the stock would be in time to perform. The wild card would be house brand – RAOUL.

China New Town had a strong debut on SGX. After that, it is all the way down, due to many incidents. Having fell from the IPO price of 0.80 to current level, those who still hold the IPO stock is having a broken heart. The promise of the company is always the land it holds and its connection. Personally, I think it would succeed given a few years and not being hammered by the credit crunch.Things to watch out for the stock are borrowing and china property market news.


Great Singapore Sale brought forward

Even though the Great Singapore Sale in June is still long way to go, but I think we already have it now. Notice that in past few months, we have all sort of sales. Retailers are trying to boost the dwindling sales figure.

As Singapore economy is very open, we are the first one to suffer, and maybe the first to rebound. Both internal and external demand is weak, it affect the consumer confidence. Another sales we are having now is the Great Stock Sales, but no taker yet.

US to save more

No doubt, US is in recession now, and they are not expected to come out quickly. The deleveraging process is painful and there is an urgent need to save jobs. The incoming president has already started work on the financial stimuli package to boost the economy. Since the trouble starts from US, it has to end at US too. US still consume a hell lot of world's goods.

However, the recovery would not be so swift. One of the popular present last christmas was piggy bank. US is start saving now! Even new jobs are created, it would take a while for people to start spending again. They would consciously save some money before they start spending.

The silver lining

US might take a whole to recover and start spending again. We hope China, in some way, is helping everyone out. They have the massive stimuli package to boost rural income and demand. The massive infrastructure building program should help to create more job and boost China economy. Hopefully this would create demand for more external goods.

The key thing now is how to create demand?

Market thoughts @ 09 Oct 08

After a few days of selling, STI finally staged a rebound of 69.10 to 2,102.71. This is after the rate cut from several central bank. Although the rate cut is good news, but in the developed market, the market selling continues. The financial and credit crisis is serious, but the real problem is seems to be fear or lack of confidence. If US fall into a deep recession, the stock price is going to fall a lot. Some analyst cautious the use of forward PE at the time when the growth prospect is not clear.

When people are selling, Warren Buffett started buying aggressively. He bought General Electric and Goldman Sachs. His principal is simple, invest in the business he can understand and significantly undervalued for a long term. When the cycle turns up, the investment could be worth much much more. Crisis mean buying time for him. To the others, this principle seems simple yet difficult to apply. The human nature of risk aversion prevent you to participate in bargain hunting, you would cut loss instead.

The growth picture is not going to improve anytime soon, some advocate to wait and see until 2Q 09. I tend to agree with this view point. Even though the market seems to be cheap now, before the sanity returns, most probably we would see more sell off rather than big gain. So, no worry here, waiting for more opportunities. The only question now is whether what to buy, what would give a significant upside when the cycle turns? I am still searching. The strategy is to concentrate on a few best idea and hope for the best in 3 years time.

By the way, there are few interesting events in the market recently.

Guangzhao IFB - Trading suspended now for the company. This is after the company defaulted on one of the convertible note issued. They are waiting for the fresh money to come in to support the bond redemption. This highlights the potential risk of investing in small and unproven company. The business model is very interesting, but the cashflow is negative. Before the real money comes in, they run out of fund and need to pay back debt. Yet to see if anybody come to rescue.

SGX - It is like the barometer of Singapore stock market. So many analysts are calling for a sell now, since the trading volume is going to reduce amid the bear market. This is true without considering the potential of the company on the long run. It is like you sell, I sell situation now. Watch out for it, when the tide turns, analyst is going to come out and call for strong buy again.

Celestial Nutrifood - The tainted milk scandal in China is supposed to boost the soya bean sales. Even starbucks also start using soya milk as a replacement. The other good news is the falling of commodity price. The two factors seem favourable but the stock cannot escape the broad base sell off we are having now. The inevitable down turn might hurt consumer sentiment and reduce consumption. Although the company is poised to do well in the long run.

The current US financial system problem

Yesterday I read a news article from WSJ, it gives a great explanation on what happened recently in US and the seriousness of the problem. A good read: http://online.wsj.com/article/SB122169431617549947.html

We seems to have gone from over leveraging to aggressive de-leveraging. The new FED measure actually aims at clean up all the toxic asset and let bank back to conventional lending-borrowing. Then, the credit crisis that choke the economy could be over.

Super panic about AIG

Look at the queue outside the AIA tower, we know that many of them are in panic mode regarding their insurance policy and the cash value of their insurance. Many took the redeem first, think later approach when fear and panic set in. It is kind of human instinct to do that, just like stock market.

Of course, people who hold on to the AIA policy would be afraid, including me. But, we have to analyse the situation. AIA as a company itself, under the MAS regulation, should have operate within the guideline. From their statement, they have adequate fund to cover all the policy holder.

On a separate note, AIG is such an american icon, the FED won't allow a sudden collapse. This is hard to articulate, but it is a logical step for them. So, I am not that worried with my AIA policy.

This is human behaviour which could explain the current market rout. Now, it is driven by news and not really by valuation. We are just at one extreme end of the market cycle. But buying in now, means you have to endure the volatility and your nature fear. Unless you have mind of steel, you better stay sideline for now. Give it another 3 months and see how is the situation. Market is not likely to just recover suddenly, expecting more "collapse" maybe. Sit tight...

Crude oil price retreated

The market is showing sign of life again when crude oil price retreated significantly and couple with some other positive news. I guess we can be grateful that it doesn't add to the inflationary pressure further. So our transport cost and bread don't go up again.

But, the worse is not over yet, at least majority of the people believe so. US economy and the banking system is still in uncertain stage. Inflation pressure and credit crunch still hurting growth. No sign we are out of bear yet and doing nothing might be the best strategy. Take this time to read some more books to enhance your stock picking skill or your mindset might be a better option.

No hurry to pick up cheap stock, with the fear that it might go cheaper. Anyway, if you whole heartedly believe in your judgment and don't bother with the short term volatility, please go ahead. I believe by 3rd quarter or end of the year, the situation might be clearer.

China oil price hike is good for the economy

China decided to hike the oil price last week, finally. It was a good move.

Usually, when the fuel price increases, the inflation would follow. Because the logistic cost would go up and that's not good for the general economy. But this time round, the situation is a bit different.

The current oil price is driven by speculative interest, geo political uncertainties and strong demand. If the government does not do something, the oil price might just keep increasing and hurt the world economy. After adjusting for the oil price, there would be a short term inflation spike, but it should help to curb the oil price increase in long run. Hopefully, the price would return to sanity soon.

In the short term, continuous financial market volatility seems to be the best bet.

Market update 11 May 08

There were few notable events for the last week:

Oil price hit record high again. This doesn't sound like a big news as most of us has get used to the record price news. However, the higher it goes, the more threat it posed for the inflation situation.

AIG big loss. AIG suffered big losses due to credit derivative linked to mortgage. Although most of the people believed the worst is over. It looks like the problem needs a longer time to settle down. Even the subprime situation has stabilized, we still don't know the full impact to other area of the market.

The inflation situation is still worrying. Citigroup announced more asset sales. Last Friday, Dow fell another 120 points. I think the recent rebound could be short lived. The economic situation is far from clear and more bad news might be coming back to market.

I still don't think it is a good time to be aggressive buyer, but depends on company situation and valuation. From the start of the year till now, I only bought some shares in FJ Benjamin. The valuation has fallen to more attractive level, the major shareholders like Peter Lim and Frank Benjamin were buying and the business still looks good for 2010. I also like the in house brand RAOUL, it might be a wild card.

Still waiting and hopefully market would correct to a more attractive level. Then, the margin of safety would be bigger.

China lower stamp duty for stock transaction

China just lower the stamp duty for stock transaction last week. As a result, the China stock market rally strongly. What is the rationale?

If you still remember, last year, they adjusted the stamp duty to curb the speculation. Immediately, the stock market plunged, because that signal the authority policy stance. It is puzzling to most of us here, that the small stamp duty amount would have a huge impact to the market. If you think rationally, it is really a very small percentage. However, we have to admit that it is a sentiment issue.

This time round, what happened was people get disillusioned about the Beijing Olympic story (that is stock market won't fall before the Olympic). More are calling for the authority to "save" them. Finally, they announced the lower stamp duty.

We have to admit that this is not a good solution. The role of market regulator is to regulate the market, to make sure it function as intended. Not to influence the market like what has happened. This would make people think that every time the authority would come to their rescue. This is no good to China market in the long term.

China Zaino - the unappreciated backpack

China Zaino made the trading debut today, close at 0.48 down 0.12 from the IPO price of 0.60. If I say, at 0.60, it represent a good buy then it is now a better buy. Of course, on the subject of valuation, it is always subjective. Different people uses different metric and assumption to value the company. Especially, at a bearish time, the valuation tends to be conservative and negative. Using simple valuation technique, I think it is good buy. For who uses more complicated method, he/she has every kind of reason to suggest it is otherwise. It is up to individual.

Another aspect to this is regarding the market sentiment. It doesn't help that China shares were being sold off widely today following the China market. In a weak market, without strong investor interest, we know the fate of the issue. But, market is not always right, to make money, we have to think objectively and independently.

The success of China Eratat (for not going under) could be due to generic interest in the China sports market. In 3 to 6 months time, we are unlikely to see a strong interest, unless the company shows a sterling result and flawless execution. Beware of the upcoming IPO!