July 2008

Date: June 30, 2008

MARKET REVIEW & GUIDANCE
(1st July 2008)

SIAS Investor Education Programme

By
Charlie Lau Suan Liat
A SIAS Investor Education Trainer

THOUGHT FOR JULY :

“Welcome to the age of anxiety. Over the past year, fear, betrayal and confusion have roiled investor confidence, leaving stomach queasy and unsettled.”
– FORTUNE, June 23, 2008.

Market Review for June:
Since October 2007, the World, Singapore included, has been suffering the pain of mega financial turmoil originating from the sub-prime mortgage meltdown in America. And now, another threat of runaway inflation is caused by Hi oil & commodities prices.

Added to this pain and anxiety was the China’s Sichuan quake, threatening the economic growth in China. This was quickly dismissed by China economists that the setback constitutes no more than 2% of China total economic output.

Then there were the change of governments that gave rise to investors’ fear of economic instability in Malaysia, Taiwan, Thailand and South Korea. By November 2008, anxiety in another change in government in the world most powerful nation, America, would surely be felt. Economic fortunes would surely be transferred from one camp to another.

Is another big financial turmoil on the way in America and the world?

“Enough. No more.” [William Shakespeare] Having gone through the difficult road of investment since October 2007, Investors big or small, institutional or retail, have been wrenched enough to be wiser, albeit poorer.

Whoever will be President of the United States of America, or whichever is the new government of any country, they would also have felt the wrenching of investors, the anxiety of investors. They would most likely not want to undermine the confidence of investors, especially in their own country.

The fuel crisis has taught governments that the humble truck-drivers, bus and taxi drivers can just leave their vehicles by the roadside and choke off economic activities as in France, Germany, Malaysia, Philippines, etc, etc., when faced with intolerable fuel hikes.

Faced with such investors’ anxiety just unfolded, it is reasonable assumption to expect new government policies to be socially more stable and economically more soothing from July 2008.

The Straits Times Index has fallen from the 52-week Hi of 3831 points [Oct 11, 2007] to the Lo of 2793 points [Mar 17, 2008] – loss of 27%Source: Straits Times. Most major market indexes for the same period slipped about 10% which is not considered a bear market scenario according to FORTUNE magazine. [20% drop or more would be considered a bear market.]

72% of Singapore’s public listed companies recorded same or improved results compared to 2006, as authenticated in last month’s article. So why has the Straits Times Index dropped more than other major world bourses, to qualify Singapore into the bear market when there was no calamitous happening in the country?

The reasons may be the Singapore market and investors are irrational, are sentiment driven, are illogical.


Guidance
:

To make money, it is important to be steady, to be objective and to be knowledgeable.

The excessive drop of the Straits Times Index could also be attributed to Index futures. So for investors with cash to outlast derivative speculators there are abundant opportunities in this bomb-out stock market to pick stocks with handsome dividend yield and good business models. Share prices will go up when time runs out for the derivative speculators.

Picking stocks for investment should be based on business model, on fundamentals and as well as technical.

Business model
In an environment of Hi fuel price, the share prices of blue chip transport companies like SIA, NOL, and ComfortDelgro can turn blue-black. That does not mean a total avoidance of those transport companies. Companies with heavy dependence on fuel are not going to go burst overnight. With track record qualifying those transport companies in the blue-chip status, investors should wait for their Relative Strength Indicators and Stochastic Momentum Indicators to be at the Lo end to buy.

The moment crude oil price collapses, as it surely would, then the rise in share prices of these blue chip transport companies would be fast and furious. Even now, these transport companies are passing surcharges to consumers.

“What goes up must come down.” – That’s Peter’s Principle.

Even Saudi King Abdullah blamed the speculators for the high crude oil price The truth of the matter is, there is no shortage of crude oil. There is plenty, according to the Saudi King, to last many more decades. In the meantime, transport companies and vehicle owners are not rationed on fuel. Nor is there a going to be a reduction in he import of crude oil. Habits die hard with consumers. So they just have to pay very high price for fuel & gas.

Charts on Crude oil price, corn, wheat and other food staples prices are very similar to World Stock Market Indexes in October 2007 before the sell-down.

An unconfirmed source in US commented that Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors have taken on high risk bets on crude oil and commodity futures, thus supporting the high prices. These organizations, caretakers of public and shareholders’ funds, have turned themselves into high risk “Index Speculators”. As of May 2008, these Index Speculators carried in their books the equivalent of 1.1 billion barrels of petroleum. This is eight times more than the US Strategic Petroleum Reserve. In 2007 the average American consumed 2.22 bushel of wheat per capita. The Index speculators carried a position of 1.3b bushels – enough to last America for two years.

So the Saudi King is correct to say that speculators are driving up not only crude oil price but also other commodities prices.

Steve Forbes of Forbes magazine [June 2008 issue] advocated the US Congress should pass a “Price Stabilizing Act, 2008” to control runaway inflation.

In 1990 US President George Bush, the Father of current President, banned oil & gas exploration and extraction from US coasts citing environmental concern. Now President George Bush, the Son, wants US Senate to lift the ban citing economic concern. Once the ban is lifted, the price of crude oil in the futures market would certainly be affected.

So besides the technical factor, there are enough forces to want to bring down the price of crude oil and other commodity prices.

When price of crude oil & commodity prices collapse, another set of problems would also affect stock markets. US Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors that have taken on high risk bets would create another “sub-prime mortgage” fiasco if they had committed more than their capital. Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors from other countries would also be affected if they are involved in the “Bear Stearns style” of involvement in over commitment.

So investors with cash and this knowledge should understand the type of stocks they intend to invest in. Transportation stocks look safe. Property companies, construction companies, building material supply companies and services companies in China would have tremendous scope for profits in the wake of the Sichuan quake. These are, amongst others, Yanlord, KeppeLand, CapitaLand, Delong, Ferrochina, RafflesEdu, and Asia Environment.

There again, it is important to look at chart indicators of whichever company to invest and make sure these indicators are at the Lo end or investors could end up losers.


Fundamentals
:

Even without charts, fundamentals like Dividend Yield and Price Earning Ratio can be important investment tools to guide investors on when to invest. These two fundamentals move in tandem with their share prices. Investors should note that these are historical data.

It is not difficult to scan through the share information page of the Business Times to look for shares with more than 8% Dividend Yield and Price Earning Ratio of under 10x. Extremely Hi Dividend Yield of a counter may not be good for the share price. In the next corporate release of dividend, if such dividend cannot match the previous extremely Hi handout, then the share price may come down sharply.

Technical:

That’s looking at the chart of a stock before buying/selling.

Most investors decide on a price to buy/sell based on personal feeling or judgment. This method is mostly inaccurate as personal feeling or judgment is always influenced by biased reports.

When there is a lot of hoo-ha on a stock and an investor takes the trouble to look at the chart of that stock, he would be able to see how much the stock has risen before the hoo-ha. He could also see the volume traded at the Lo price a few days before the hoo-ha. Then he could decide objectively whether or not it was prudent to buy that “hoo-ha stock”.

*If you wish to contact our writer, please email at sllau@uobkayhian.com


* SIAS Upcoming Event – Stock Market Outlook & Guidance by Charlie Lau Suan Liat
*
MARKET REVIEW & GUIDANCE
(1st July 2008)

SIAS Investor Education Programme

By
Charlie Lau Suan Liat
A SIAS Investor Education Trainer

THOUGHT FOR JULY :

“Welcome to the age of anxiety. Over the past year, fear, betrayal and confusion have roiled investor confidence, leaving stomach queasy and unsettled.”
– FORTUNE, June 23, 2008.

Market Review for June:
Since October 2007, the World, Singapore included, has been suffering the pain of mega financial turmoil originating from the sub-prime mortgage meltdown in America. And now, another threat of runaway inflation is caused by Hi oil & commodities prices.

Added to this pain and anxiety was the China’s Sichuan quake, threatening the economic growth in China. This was quickly dismissed by China economists that the setback constitutes no more than 2% of China total economic output.

Then there were the change of governments that gave rise to investors’ fear of economic instability in Malaysia, Taiwan, Thailand and South Korea. By November 2008, anxiety in another change in government in the world most powerful nation, America, would surely be felt. Economic fortunes would surely be transferred from one camp to another.

Is another big financial turmoil on the way in America and the world?

“Enough. No more.” [William Shakespeare] Having gone through the difficult road of investment since October 2007, Investors big or small, institutional or retail, have been wrenched enough to be wiser, albeit poorer.

Whoever will be President of the United States of America, or whichever is the new government of any country, they would also have felt the wrenching of investors, the anxiety of investors. They would most likely not want to undermine the confidence of investors, especially in their own country.

The fuel crisis has taught governments that the humble truck-drivers, bus and taxi drivers can just leave their vehicles by the roadside and choke off economic activities as in France, Germany, Malaysia, Philippines, etc, etc., when faced with intolerable fuel hikes.

Faced with such investors’ anxiety just unfolded, it is reasonable assumption to expect new government policies to be socially more stable and economically more soothing from July 2008.

The Straits Times Index has fallen from the 52-week Hi of 3831 points [Oct 11, 2007] to the Lo of 2793 points [Mar 17, 2008] – loss of 27%Source: Straits Times. Most major market indexes for the same period slipped about 10% which is not considered a bear market scenario according to FORTUNE magazine. [20% drop or more would be considered a bear market.]

72% of Singapore’s public listed companies recorded same or improved results compared to 2006, as authenticated in last month’s article. So why has the Straits Times Index dropped more than other major world bourses, to qualify Singapore into the bear market when there was no calamitous happening in the country?

The reasons may be the Singapore market and investors are irrational, are sentiment driven, are illogical.


Guidance
:

To make money, it is important to be steady, to be objective and to be knowledgeable.

The excessive drop of the Straits Times Index could also be attributed to Index futures. So for investors with cash to outlast derivative speculators there are abundant opportunities in this bomb-out stock market to pick stocks with handsome dividend yield and good business models. Share prices will go up when time runs out for the derivative speculators.

Picking stocks for investment should be based on business model, on fundamentals and as well as technical.

Business model
In an environment of Hi fuel price, the share prices of blue chip transport companies like SIA, NOL, and ComfortDelgro can turn blue-black. That does not mean a total avoidance of those transport companies. Companies with heavy dependence on fuel are not going to go burst overnight. With track record qualifying those transport companies in the blue-chip status, investors should wait for their Relative Strength Indicators and Stochastic Momentum Indicators to be at the Lo end to buy.

The moment crude oil price collapses, as it surely would, then the rise in share prices of these blue chip transport companies would be fast and furious. Even now, these transport companies are passing surcharges to consumers.

“What goes up must come down.” – That’s Peter’s Principle.

Even Saudi King Abdullah blamed the speculators for the high crude oil price The truth of the matter is, there is no shortage of crude oil. There is plenty, according to the Saudi King, to last many more decades. In the meantime, transport companies and vehicle owners are not rationed on fuel. Nor is there a going to be a reduction in he import of crude oil. Habits die hard with consumers. So they just have to pay very high price for fuel & gas.

Charts on Crude oil price, corn, wheat and other food staples prices are very similar to World Stock Market Indexes in October 2007 before the sell-down.

An unconfirmed source in US commented that Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors have taken on high risk bets on crude oil and commodity futures, thus supporting the high prices. These organizations, caretakers of public and shareholders’ funds, have turned themselves into high risk “Index Speculators”. As of May 2008, these Index Speculators carried in their books the equivalent of 1.1 billion barrels of petroleum. This is eight times more than the US Strategic Petroleum Reserve. In 2007 the average American consumed 2.22 bushel of wheat per capita. The Index speculators carried a position of 1.3b bushels – enough to last America for two years.

So the Saudi King is correct to say that speculators are driving up not only crude oil price but also other commodities prices.

Steve Forbes of Forbes magazine [June 2008 issue] advocated the US Congress should pass a “Price Stabilizing Act, 2008” to control runaway inflation.

In 1990 US President George Bush, the Father of current President, banned oil & gas exploration and extraction from US coasts citing environmental concern. Now President George Bush, the Son, wants US Senate to lift the ban citing economic concern. Once the ban is lifted, the price of crude oil in the futures market would certainly be affected.

So besides the technical factor, there are enough forces to want to bring down the price of crude oil and other commodity prices.

When price of crude oil & commodity prices collapse, another set of problems would also affect stock markets. US Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors that have taken on high risk bets would create another “sub-prime mortgage” fiasco if they had committed more than their capital. Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and Institutional Investors from other countries would also be affected if they are involved in the “Bear Stearns style” of involvement in over commitment.

So investors with cash and this knowledge should understand the type of stocks they intend to invest in. Transportation stocks look safe. Property companies, construction companies, building material supply companies and services companies in China would have tremendous scope for profits in the wake of the Sichuan quake. These are, amongst others, Yanlord, KeppeLand, CapitaLand, Delong, Ferrochina, RafflesEdu, and Asia Environment.

There again, it is important to look at chart indicators of whichever company to invest and make sure these indicators are at the Lo end or investors could end up losers.


Fundamentals
:

Even without charts, fundamentals like Dividend Yield and Price Earning Ratio can be important investment tools to guide investors on when to invest. These two fundamentals move in tandem with their share prices. Investors should note that these are historical data.

It is not difficult to scan through the share information page of the Business Times to look for shares with more than 8% Dividend Yield and Price Earning Ratio of under 10x. Extremely Hi Dividend Yield of a counter may not be good for the share price. In the next corporate release of dividend, if such dividend cannot match the previous extremely Hi handout, then the share price may come down sharply.

Technical:

That’s looking at the chart of a stock before buying/selling.

Most investors decide on a price to buy/sell based on personal feeling or judgment. This method is mostly inaccurate as personal feeling or judgment is always influenced by biased reports.

When there is a lot of hoo-ha on a stock and an investor takes the trouble to look at the chart of that stock, he would be able to see how much the stock has risen before the hoo-ha. He could also see the volume traded at the Lo price a few days before the hoo-ha. Then he could decide objectively whether or not it was prudent to buy that “hoo-ha stock”.

*If you wish to contact our writer, please email at sllau@uobkayhian.com


* SIAS Upcoming Event – Stock Market Outlook & Guidance by Charlie Lau Suan Liat
*