Building my 2013 Portfolio

2013 will be here soon, and I am excited, because each year, different themes come into play. For 2013, I definitely believe China will be the theme. Therefore, I will be building a portfolio mainly around China. Even Noble and Wilmar, I consider them as China plays, since commodities demand are fuelled by the Chinese.

My current portfolio:

Counter	Buy Price	Price Now	Gain (Unrealised)
Midas	0.37	0.42	13.5%

I will try adding more if stock market corrects. Of course, my portfolio will not be limited to China shares. If I spot a good opportunity in the rest of the sectors, rest assured I will jump to trigger the Buy button.

2013 Candidate # 4: Pan Utd

The fundamentals:

Recently, a brokerage recommended this stock for its good fundamentals. Although I couldn't agree less, is this stock still a good buy? Let us look at its technicals.


The technicals:

This is what I call, the "developed beautiful chart", red line (50d MA), above blue (150d MA) above green (200d MA). What a nice uptrend!

But should we buy? Too late to the party.

2013 Candidate # 3: China Minzhong

The Fundamentals:

1. Olympus Capital, a private equity fund, has sold its entire stake of 57m shares in China Minzhong through a private placement last Thursday at SGD0.80 per share. In our view, this placement is a positive for Minzhong as it removes a long-term share overhang on the company without adding too much selling pressure in the open market.

2. Management took advantage of the vendor share placement to increase personal stakeholdings. This clearly signals management’s confidence in the company’s fundamentals and the attractiveness of its share price.

3. We are looking at an average of 15% EPS growth for the next three years. As it stands, Minzhong’s share price is deeply undervalued at the current 2.9x FY13F PER. Reiterate BUY with the target price unchanged at SGD1.16.

(Source: Kim Eng)

The Technicals:As with other China stocks, I am positive on this stock. The recent selldown certainly represents a buying opportunity.

                                                                

 

However, between this and Midas,I prefer Midas. Furthermore, I was already considering buying this stock back when it was in the 50s. I will give this a miss.

 

 

 

 

 

 

2013 Potential Candidate #2: Swiber

The fundamentals:

1. The stock is trading below peer average valuations at only 5.8x FY13F PER and 0.6x P/B.
2. Orderbook in 2012 reached a high of USD1.7b YTD. Management believes it would get even better in 2013.
3. With enlarged fleet, Swiber is poised to benefit from the robust offshore sector. EPS should grow by CAGR of 18% over FY12-14.

(Source: Kim Eng)

The technicals:

A gentle but nicely developing uptrend formed by higher highs and higher lows.

Verdict: Can buy, but I would wait for correction. Note that RSI now in overbought zone.

2013 Potential Candidate #1: Midas

The fundmentals (source: KimEng):

1. Recovery still at early stage
2. More years to go for China’s high-speed rail
3. Upstream customers’ order wins a key catalyst
4. Expect earnings recovery from 2H13.
5. New round of train tender offers is a high probability
6.  Boon for Midas if CNR(Chinese Railway Company) wins potential tenders

The techinicals:

MAs are indicating a developing upward trend.


Bonus factors:

A play on recovering China economy.


Verdict: Buy. I am vested.

 

Which will be the next Ezion?

As we know by now, Ezion has come a long way from 0.40 since Oct last year , hitting a high of 1.51 just last month (a 300% increase!)

Some others which have exhibited similar patterns are:

 

Of course, there are many others. But we are not interested in the past. More interestingly, which stocks will take off in the coming year? I will be writing about these soon.

Why I am still bullish... at least for first part of 2013

Despite fears of the fiscal cliff, China slowing down and US and Europe possibly going into recession, the markets are refusing to budge. Therefore, I am still bullish on the stock markets for the following reasons:

• I am betting that the fiscal cliff will get some resolution
• Over the last five years, some $500 billion has poured out of equity mutual funds and $1 trillion flooded into bond funds. Virtually every category of investor is running equity exposures at historic lows. A reversal of these flows would trigger the mother of all bull markets.
• The Fed will keep good on its promise to keep interest rates at zero until 2015.
• The European Central Bank will continue its never-ending monetary stimulus

How much will the markets rise?
The S&P 500 could clawing its way to $1,600 or more by the end of 2013, up some 13% from here.

Source: Presented by John Thomas, Global Trading Dispatch, Market Authority

I am especially bullish on stocks related to China at this moment .

Reasons to buy Midas for 2013 recovery

Midas Holdings: BUY S$0.36; Bloomberg: MIDAS SP
Poised for a turnaround;
Price Target : 12-Month S$ 0.50 (Prev S$ 0.49)
By: Paul YONG CFA +65 6398 7951

• We visited Midas’ production facilities in Luoyang, Nanjing and
Jilin recently
• The Group’s production capabilities and capacity has expanded
during this lull period
• Winning more orders from wider sources should help boost the
Group’s profitability
• Maintain BUY with TP S$0.50 (1x FY13 P/B)


Enhanced capacity and capabilities. Whilst orders have been slow in coming
through to Midas, it has been enhancing both its production capacity and
capabilities, in addition to diversifying its product range. Jilin Midas
now has an aluminium extrusion production capacity of 50,000 tonnes per
annum and can fabricate a complete range of train parts, including for
export.

More contracts to flow in, and boost profitability in 2013 and 2014. We
expect Midas to comfortably win orders of c. RMB1bn from metro, export and
the non-rail segments (power and other extrusion products) over the next 12
months, while high-speed train orders will depend on how soon the Ministry
of Railway (MoR) makes its purchases. If the MoR does order 400 train sets,
as people in the industry expect, we project that Midas could win c. RMB1bn
worth of high-speed train orders for delivery over the next 2-3 years.
Meanwhile, associate Nanjing Puzhen should also see an earnings turnaround
on its strong RMB8.5bn order book.

BUY for 2013 turnaround story, TP S$0.50. Midas is currently trading at
0.7x FY13 P/B, which we see as attractive for a turnaround story. We
believe the stock should re-rate as contracts start to flow in once again
for the Group. Our TP is based on 1x FY13 P/B.

Bear Run?

STI has broken below a Double Top.

 






                          

                                                                           

How long more to go is anybody's guess. But as usual, I will be preparing a buying list.

 

 

Stock Market Outlook 2013 - Market Authority

This is the time of the year to make preparations. Of course, prior to preparations, I must have a general feel of the markets. The only way to do this is to read up on market outlooks. This one, by John Thomas of Market Authority goes like this:


The 4 likely black swans
1) The Presidential Election. Most of Wall Street is hoping for a Romney win, but bracing themselves for an Obama one. No matter who wins, I expect a post-election surge in stock prices as a great mantel of uncertainty has been lifted from the markets. And as we all know, markets hate uncertainty.

2) The Fiscal Cliff. The media is ramping up their warnings of the dire impact of the "fiscal cliff" further scaring investors out of risk positions in everything from stocks to gold. The only real tangible impact of this "wolf crying" was to give a much-welcomed lower low in risk assets in October.


3) The Next European Quantitative Easing. Another round of monetary easing is due on the form of an additional "Long Term Refinancing Operation" or LTRO. The last one was for €500 billion, or $650 billion. Make that a double.

4) The New Year Reallocation Push. Add these annual flows to the positive developments outlined above, and you have the ingredients for a serious rise in stock prices. I think we could get as high as 1,600 for the S&P 500 in the first quarter of 2013.

This will however be the last 10% of a 140% move off of the March, 2009 low. This next ramp in share prices could be setting up us for the Greatest "Sell in May and go away" of all time. While president Obama may be puffing his chest out over one of the greatest stock market performances on record, he may well go down in history for "The Great Obama Crash of 2013."

Let me list the reasons why I expect a recession in 2013:

• The retirement of the baby boomer generation will continue to act as a drag on the economy for another decade, paring growth by 1%-2% a year.
  
• While the resolution of the fiscal cliff will be hailed as a great accomplishment, the bottom line is that a $4 trillion agreement will take 25% out of our GDP. 
    
• Look for Europe to remain in recession, adding more dead weight to corporate earnings here.
• Ditto for China, where a growth recession is delivering a serious blow to any company involved in the commodities sector, including steel, coal, iron ore, and copper. However, things may pick up after March 2013, after the leadership changes.
    
• While QE3 will give us a nice 4-6 month boost to asset prices, it can't do it forever. 
    
• We will enter the next recession with the highest unemployment rate in history, now 7.8%. .
  
• The year after a presidential election is always a great year to have a recession because it gives the ruling party three years to dig out before the next one.
  
• All of the gains in the stock market since June have been achieved through multiple expansion - from 12.7X to 14x today and 16X by March, Corporate earnings have actually been flat to falling during this time. Many companies are now hunkering down and reducing spending in expectation of a 2013 recession. This is why capital spending only reached half of the peak spending seen in the previous cycle.

If I am wrong with this analysis, the markets will bounce along sideways in an environment of falling volatility. That's why I am positioning myself with in-the-money calls spreads in order to profit from every possible scenario.

 

Recession 2013

 

All of this adds up to a big "R" for 2013, and share prices will no doubt reflect this. But I'm not looking for a major collapse a la 2008-2009, which saw a 53% plunge in the (SPX). I'm thinking more like a 25% to 37% pull back from a 1,600 top to no worse than 1,000. Those predicting Armageddon-like meltdown to 600, 300, or worse will be wrong by miles.

My reasoning is very simple. To get those huge, cataclysmic sell off of 500-800 Dow points a day you need to have a massive amount of leverage in the financial system. You had that six years ago, with equity hedge funds levered by 200% and bond funds betting the ranch with 1,000% or more long positions.

Conditions couldn't be any more different today. Hedge funds are typically running modest longs of 10%-20%. If they asked for 200% leverage, their prime brokers would probably tell them to go to hell and close their accounts. Morgan Stanley (MS) and Goldman Sachs (GS) are now running more bankerly 10X leverage. Individual stock investors have gone missing in action.

Biggest Buying Opportunity

Hopefully, it will be a short recession, maybe six months in duration, or only two back-to-back down quarters. After that, one of the biggest buying opportunities of the decade will set up for all asset classes. That will be the subject of a future report.

China at the point of reversal

China shares are bottoming, and reversing. This is indicative that the worst is over for the Chinese economy. Look at the table below. These are shares of companies most likely to benefit from the lastest Chinese quantitative easing - railway construction.

	3 months ago	Now	% change
Anhui	19.1	27.4	43%
China Coms	5.75	7.6	32%
China Railway Constr	5.71	7.7	35%
China Railway Grp	2.83	3.79	34%
Zhuzhou	16.38	23.5	43%
Midas	0.27	0.44	63%

 
Chart of Midas below. Notice that it is breaking out of a double bottom formation.

Time to buy Chinese shares.

Once-in-a-generation buying opportunity

Albert Edwards, global strategist of Societe Generale, says the US is headed for recession, and that a hard landing looms for China. This could lead to a more than 60% to 70% crash in the S& 500, and a more than 80% collapse in copper prices, all within the next 18 months.

Who is Albert Edwards? He is the economist who foresaw the Asian financial crisis in the 1990s. In fact, he warned clients back in 1995,1996. The crisis became full blown by 1997. He also foresaw the tech bubble in 2000. Now, he says, another crisis is looming. What are the reasons for this?

1. US will be unable to avoid a major recession
2. US stocks are now very expensive
3. Spillover effects to the rest of the world
4. Asian and Europe equities will get cheaper
5. Most people are way too complacent that policies will work in China

Conclusion
The world might now be in similar situation to early 2008.

Implication
Deadline for crash is March 2014. Between now and then, short the markets. Then wait for the once-in-a-generation opportunity to buy very cheap equities. Start to deploy cash as the index is on the way down to 400-500. More importantly, have a lot of cash on stand-by.

Midas Touch

The Chinese government has announced a RMB1 trillion ($196 billion) stimulus, targeting at infrastructure spending.

So who benefits? “We are reinstating our buy recommendation on Midas Holdings after having downgraded it to hold in mid-July this year as we believe that the China government’s announcement yesterday means that it is a question of “when” and not “if” the two-year drought in high-margined high-speed rail contracts ends,” notes Lim & Tan in a research report.

Midas’ 32.5%-owned associate company Nanjing SR Puzhen Rail Transport Co (NPRT) managed to clinch some RMB3.25 million of contracts this year, bringing its order book to RMB847 billion, to be delivered over the next three years. Since Midas is the preferred aluminium extrusion supplier to NPRT, the metro train contract wins will benefit Midas.

Separately, Midas is also winning contracts from the maiden power industry in China with RMB123 million worth of new contracts announced earlier this week, increasing their order books by 21% to RMB723 million.  According to Lim & Tan, Midas’ earnings is expected to rebound 133% in 2013 to RMB182 million, translating to a prospective PE of 12 times, down from 2012’s 27 times.

Adapted from The Edge Online

Building a short list

The signs are there ... stock markets are buildingup to a climax yet again. The VIX at all-time low, the stock indices approaching all-time highs, and Europe approaching a recession soon. It is time to get ready a list for shorting. There are several waysto do it.

1. Short the indices.

Key shorting candidates include Dow Jones Index, DAX and FTSE (since they are the centre of attention).


2. Short stocks

Facebook (alas, I should have shorted it in its 30s, but it was in a rising market at that time) and the local stocks who have outperformed on the STI. Will be compiling a list to short.

Question is: When to start shorting. According to my indicators, within the next few weeks.

Taking partial profit

I have taken part profit on Yanlord @ 1.34 and SembMar @ 5.02. Markets seems shaky and have lost
the will to go any further. Also putting a sell stop on Yanlord @ 1.29 to protect trading profits.

Still holding on to my long-term positions in  NOL, Wilmar and SembMar though.

*I bought Yanlord @ 1.22 and SembMar @ 4.43

How far will Yanlord go?

I bought Yanlord sometime in April as a play on the Chinese property market. In recent weeks, it has behaved spectacularly, rising from a low of 0.975 to last Friday's high of 1.35 (increase of almost 40%!). How much higher will it go?

According to the chart, it has broken out of a double bottom neckline at 1.10 and key resistance level at 1.20. Next resistance is at 1.40, then it will challenge its year high of 1.50. Now, this is the exciting part. If 1.50 can be broken convincingly, this counter could fly all the way to the sky. Go Yanlord go!

Dow crash by 120 points yesterday, so should I take profits quickly?

Is it time to sell? Dow Jones seems to reverse itself after running up consecutively for the past couple of weeks. Stock markets taking a breather or changing direction down again?

I still think I would stay a little longer in the markets for the reasons cited before:

1. Equity valuations are still attractive. According to Luke Richdale, client portfolio manager at JP Morgan, we are near 1.5 times P/B for emerging markets, and emerging markets historically made money for investors on a 12-month basis when the P/B hit 1.5. During such times, investors should see returns of 65% p.a.

2. There should be further rate cuts and policy action soon. In this regard, China is expected to benefit the most. In fact, Credit Suisse expects the Shanghai market to trade up to 2,800 in 12 months time. (Of course, this is for reference only)

3. Other markets are also expected to go higher from now onwards, as bad news are priced in (although road ahead will be rocky). We should eventually see  Hang Seng trade to 23,500 and STI at 3,300, according to Credit Suisse.

Of course, it would be very good if these projections indeed come true. For now though, I am on the side of bullish analysts. (But, things may change in the next few weeks).

I am glad I did not sell out during correction last month

It has been an exciting month - my trading portfolio actually swung from negative 5K to positive.
Now, will stock prices dive again, and hence take profit?

Look at the weekly chart of STI (Straits Times Index):

It has been very bullish since 8 Jun. I believe this bullish momentum is only about half way through.
The STI should break 3000 very soon.

So, I will hang on to my stocks for now.

Is the stock market rally over?

So, the indices of the world are now in negative territory, with many falling below their
200-Day MA. Technically, this should be the end of the bull market, and the start of a new bear market. But not yet, I think.

Reasons are:

1. Sentiment indicators are very bearish (this is a bullish sign)
2. Political stabilisation in Europe could occur soon
3. Stocks tend to trend higher during a US Presidential election year
4. Stocks are still cheap (low PE and PB), and Chinese stocks are probably past their lowest point in October 2011

At this juncture, I am fully participating in the GSS (Great Stock Sale).

My positions:

Noble
NOL
Semb Mar
Wilmar
Yanlord

Will be adding more in the next few weeks.

What to do when newspaper headlines scream "Polls revolt in Europe spooks Asian markets"

Today's Straits Times article screams "Polls revolt in Europe spooks Asian markets".  Should we bail? No way. For me, this is a very strong signal to buy. Remember, be greedy when others are fearful. From my experience, there is usually only one chance to buy shares at a sale every year. This should BE that SALE. I am monitoring my watchlist.

My watchlist:
CapitamallAsia
Capitaland
First Resources
Goodpack
Sakari
Sembcorp
Sembcorp Mar
Wilmar

What makes a good investor

Good Investors are are not exceptionally clever, nor are they especially driven.


However, they are:

     1.  At peace with themselves - they enjoy happy marriages and blissful family lives
     2.  Know their limits - never chase after share price
     3.  Make big bets when blood is on the streets
     4.  Go in with eyes wide open - they observe consumer habits and make careful note of trends
     5.  Do not accept analyst reports at face value
     6.  They do not invest if they do not understand what is going on
     7.  Have ready cash reserves to take advantage of opportunities

Adapted from "Don't go chasing stock tips" by Goh Eng Yeow. This article appeared in the Sunday Times on 22 Apr 2012.

Cheapest Stocks in 6 Years Lure Funds: China Overnight

The lowest Chinese stock valuations since 2005 are a buy signal to the biggest emerging-market money managers, who say the economy will avoid a hard landing as the government bolsters growth according to this article.

More China stocks to consider

Also, to consider China Minzhong and Petrochina.

China Minzhong Current Price: 0.99
Attractive Fundamentals. PE: 4.8,  P/B: 0.9


Petrochina Current Price: 10.84.
Sexy industry. PE: 12.05, P/B: 1.6
Bullish Engulfing.

Which China stock should I buy?

I think it's better to buy some for keeps now. China is cheap. Period.

This is a list of stocks I have narrowed down:

Stock	Price(HK$)	P/E	P/B	Technicals	Uptrend?
China Citic Bank	4.57	5.22	1	50% retracement	Yes
China Construction Bank	5.96	7.2	1.5	50% retracement	Yes
CNOOC	15.60	8	2.15	50% retracement	Yes
China Overseas Land	15.90	8.6	1.85	Little retracement	Yes
Dongfeng  Motors	13.90	9.2	2.1	50% retracement	Yes
Guangzhou R & F	10.10	5.5	1.17	Little retracement	Yes
Industrial & Commercial Bank	5.01	6.9	1.5	50% retracement	Yes
Yanlord	S$1.24	8.15	0.82	50% retracement	Yes

(Source: Bloomberg)

All are on newly established uptrends since January, and most are sitting nicely on 50% support
(the golden number). In addition, all have attractive PE ratio of below 10 and one (Yanlord) even below its book value. So, what am I waiting for?

My choice candidate: Yanlord (it has the bonus appeal of having Peter Lim on board).

China is attractive now - but is it time to buy yet?

The Shanghai market is looking REALLY attractive.

I mean, there is that little more downside that it can go, that's that. But problem is, global markets are starting to weaken. This should limit any rebound that the Shanghai market could have. So, until global stock markets fully correct, I will not be pressing the buy button yet. But I am watching closely.

Why I remain bullish

Here are the reasons why I do not see a market top yet:

• Valuations remain compelling
• Retail investors have yet to enter the market in full force
• Bull markets in emerging economies last 69 months and up 423% on average and bear markets there average 14 months and down 57% (Mark Mobius)

However, in the very short term (next few weeks or months), I see more consolidation in the markets, especially since markets have made such a big run since Decmber 2011. But, any dips will present opportunities to buy stocks at more attractive levels.

1Q Report Card

Due to a stronger than expected stock market in the 1st Q, I have managed to salvage my portfolio from underperformance. The breakdown:

Stock	Bought	Sold	Gain/ (Loss)
ICBC	4.22	5.47	+29%
Anhui	24.80	28.00	+13%
Sembcorp	4.85	5.11	+5%
Yanzhou	19.50	19.50	0%( but lose on commissions)
Russell	828	828	0%( but lose on commission)
Noble	1.15	-	Still holding
NOL	1.84	-	Still holding
Wilmar	5.10	-	Still holding

I continue to be of the opinion that stock markets around the world will go on to new highs (in fact Dow Jones is already on its way to breaking its 2007 high), before any major market plunge.

Hence, I will still be making use of dips in the market to add to my portfolio. Hopefully, the traditional May-Jun market lull period can provide me with attractive entry levels to purchase stocks.