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).