Singapore listed Chinese Companies - S Chips

Some of my friends asked me what i think of Singapore listed S chips, I shall do a brief writeup about my personal views :

Many of the S chips listed in Singapore are now trading at low PE (share price to EPS ratio) or near cash per share because :
1. Despite some signs that the global financial crisis may be over, recent reported financial results remain weak (eg profit continue to decline or margins have not recovered)

2. Confidence were badly shaken due to the accounting scandals or corporate governance issues affecting some S chips

Let’s look at the above 2 points separately.

Point 1 - this is a more general reason which can affect all companies, not just S-chips, so all we have to do is do more homework and analyze the financial results of the companies, and look for signs of recovery.  One of the early signals which I use sometimes is look for “sequential” earnings recovery, rather than year-on-year recovery.  Sequential means comparing the latest net profit (eg 3Q09) to that 3 months ago (eg 2Q09) and if you see the company profit improving due to better operating performance (rather than forex gains or unusual items like writebacks) than this is the first thing that will get my attention.

Point 2 -  i personally think that the entire S-chips sector have been “over-punished” by the actions of a few bad apples.  Bear in mind that be it accounting scandals or frauds or corporate governance issues, all these happen to all stock markets, even in Hong Kong and US stock markets.  But the interesting part is how the people “react” to it when it happens.

In Hong Kong, when you see certain negative news about the market, the press will just report it (usually in smaller column) and move on.   Hong Kong press seldom devote a large section of the newspaper to play up the issue.  In Singapore, I saw the press devoting half a page to highlight certain things and continue to highlight these issues for many days.  Doing it and over-doing it is a fine line…….. to me hong kong press just do it but singapore press may have over-done it.

If the press over-report certain negative aspects, then it will hit the core of investor confidence, that they will think ALL S-chips are bad and this will bring down the valuations of ALL S-chips.

In Hong Kong and even US, we have seen the press reporting certain fraud cases but they do not over-report it and quickly move on to other matters. Investors take these incidence as part and parcel of the stock market, fraud are things that have happened and will continue to happen in the financial markets.  One should not react as though it is incomprehensible that fraud can happen to listed companies in Singapore.  This is one of the possible reasons why the PE of china companies in hong kong has recovered much “faster” compared to those China companies PE in Singapore.  I use the word “faster” because HK listed china companies PE are usually higher than S-chips.

What’s done is done, so what to expect next for Singapore S-chips…..

If you look at the PE S-chips are at now ie trading 3 to 5x pe, these valuations to me are pre-ipo valuations and we know that pre-ipo valuations means High risk High returns.

These means “some” of the s-chips may yet blow up due to the high risk associated with but “some” who survive will give high returns later from the low valuation they are at now.  One good example would be an S-chip called Sinotel. The lowest price was around 7c (when EPS was about 10c) this means the stock was trading below 1x PE haha, we can laugh now in hind-sight.  But when smart money realize the rediculous under-valuation, the stock price start to recover and recently went to as high as 70c (10 bagger is the high return some pre-ipo projects may give).

So when we look at S-chips now, we should adopt they way PE (private equity) fund invest in pre-ipo project…..they expect high risks and high returns, so they DIVERSIFY.

PE fund usually try to go in at 2-4x pe before ipo and wait to make few baggers when the ipo goes through.

But if the ipo is stucked or failed, their money may go up in smoke.

So they usually try to spread their money evenly in a few projects such that as long as some make it, they will still make money at the end of the day.

In summary, look at s-chips as pre-ipo projects (high risk high return), and learn to diversify when you put money in s-chips with the expectation that some may still blow up in your face

Before I sign off, let’s not forget the quietly growing number of I-chips (Singapore listed Indonesia Owned) listed in Singapore share market and the “thrill” that they are giving us now………hmm sounds familiar eh

Happy Trading

Rooney

Both Down Jones and Singapore Straits Times Index (STI) charts have turned negative in the near term showing signs of potential short term correction.  I say “potential” because technical indicators such as stochastics and w% are showing signs of weakness and have identified near term support levels.

For STI, the near term support is 2701. If price close below 2701 then short term correction would have set in and the next support level could be 65 simple moving average line around 2614.  Using longer time frame indicators such as 30 days MACD and 65 days stochastics, the medium and longer term signals for STI currently still points to uptrend.

For Dow Jones, the near term support is 9992. Both short term indicators for dow jones such as stochastics and w% have reached overbought zones and crossing down indicating possible short term correction.  Take note if dow jones close below 9992 in the next few days.  Near term support is around 9514 level using 65SMA.

For shortists, it’s time to watch out for those support levels when they are broken.

happy trading

rooney 

been checking out various forex auto trading software or robots (also called expert advisor) in the market over the past few months.

many of them looks good in back testing but NOT in live trading, including megadriod or fap turbo which i have tried in live trading…..they may be many reasons to that but as long as it does not make money it is no good to me, period.

but all is not lost, i recently came across 2 expert advisors (EA) which seem to work well in LIVE trading mode, yes live. and in fact, i know someone who is using this successfully over the past 3 months.

here is the link to the live demo account using the EA :

http://www.mojostock.com/metatrader4stats-iwinfxtrader.php

we shall continue to monitor and see if it can be consistent at least over the next six months

so far, the return per month is not very high, around 2-3% per month, but hey, one should not be complaining since he does not have to do anything while the robot trades forex for him and more importantly, it ends up with NET PROFIT at the end of the month over the past 3 months. we still have to monitor it a while longer and see when during losing months, how bad can it be ie how big is the draw down.

cheers

rooney