The year 2010 is drawing to a close and it is not unusual for many investors and punters to hope for a traditional New Year Rally to make some pocket money. Question: Would there be a New Year Rally in this forthcoming New Year?
Looking at our market behaviour over the past 3 years, a New Year Rally this time would appear extremely likely taking into consideration the following factors –
There were no New Year Rallies in Jan 2008 & 2009. The January 2010 Rally was a short-lived one, benefiting mainly the blue chips. A traditional New Year Rally therefore, seems way overdue.
The US and Asian economy have generally improved and corporate results for many SGX listed stocks including penny stocks, have also improved, some with very strong earnings. The end-of-the-year rally (or Santa Claus/Christmas rally), if it happens, is normally confined to blue chips or index stocks; while the traditional New Year Rally is more broad-based with greater investors participation. The blue chips already had a very good run up in their share prices since the market bottomed in March 2009; while the share prices of the penny stocks, especially S-chips, are generally being capped at their lower end all this while. The improved corporate results have made some penny stocks extremely undervalued and underpriced when compared to the blue chips. Like stocks that are undergoing a “Bollinger Squeeze”, it is only a question of time before the prices of some of these stocks explode to higher level to close the wide valuation gap existing between them and the blue chips. An opportune time of this happening may be during the forthcoming traditional New Year Rally.
Market behaviour and market participants’ behaviour never change throughout the years. Since early this year, investors generally have not been bullish especially towards penny stocks providing their share prices a lengthy period to consolidate at the lower level. As the downside for many of these stocks are limited, any sign of a possible New Year Rally could readily drag many into the market for “fear of missing out on opportunities to make money”. Many seasoned investors always relish such a rally and there is a high probability that history will repeat itself once more.
It's time for accumulation of undervalued stocks for a rally that is already taking hold as a flood of money floods Asia. Apart from that, sentiment is really turning up which will turn on the booster power for lots of small and mid-cap stocks. What will run? Maybe the following:
a) Otto Marine b) Saizen Reit c) Eratat Lifestyle d) China GaoXian e) Best World International f) Abterra g) Bright World Precision
Read Thurs 4/11/10 Straits times, pg B31: S chips make a comeback in Singapore
Analysts cite possible reason: growing realisation they may be undervalued.
Ho Say Liow Lah.... S Chips CHIONG ARH....
Every cloud has its silver lining, every dog has its day...
THEY have been in the doghouse for over a year, but interest in S-chips is slowly reviving as retail investors are lured back into the market in large numbers.
Scandals, corporate governance issues and just plain dodgy dealing made S-chips - China plays listed on the Singapore Exchange (SGX) - market pariahs.
Among the worst offenders were Fibrechem Technologies and education firm Oriental Century, which were both suspended from trading over alleged accounting irregularities.
But investors took another look around the middle of the year and they have driven up values by about 25 per cent in the past five months, as measured by the FTSE ST China Index, which tracks 59 such firms.
That stellar performance beat the 21 per cent rise of the benchmark Straits Times Index, which tracks blue chips.
Analysts said there are a number of reasons to explain the turnaround.
One is a growing realisation that S-chips may be undervalued by investors, given the healthy appetite shown in Hong Kong and Taipei each time one of them makes a secondary offer of their shares there.
The continuing China boom story is also making investors sit up and take notice.
The mainland's purchasing managers' index rose to 54.7 per cent last month, up from 53.8 per cent in September - a striking reflection that its huge manufacturing sector is expanding to cope with rising consumer demand.
Then there is the hope that S-chips will unveil better-than-expected quarterly results over the next few weeks.
It is all music to the ears of investors as they make their way back to the market in anticipation of the year-end rally.
'Some S-chips offer very attractive bargains because they have fallen way below book value. Sooner or later, they will get a positive re-rating from the market,' said trader Peter Ong, who bought into a number of China plays recently.
The catalyst for analysts to re-rate an S-chip is a secondary listing on another bourse.
'The rational time to invest in an S-chip is when there is a stock market equivalent of an angioplasty - opening up the way which is blocking its valuations by having a secondary listing elsewhere,' said Phillip Securities analyst Chan Wai Chee.
Credit Suisse observed last month that share prices of companies looking for dual listings in Hong Kong typically rise about 65 per cent between the time of announcing plans to list and receiving approval. The rise in Taiwan is around 10 per cent.
Once approval to trade is granted, both groups of companies enjoy a further 20 per cent jump in prices on average.
But traders said credit must go to S-chips that make the extra effort to look after local investors' interest by seeking to narrow any differences between the prices of the SGX listings and those of shares traded elsewhere.
One example is giant shipbuilder Yangzijiang, which in September became the first mainland firm to trade Taiwan Depository Receipts (TDRs).
It priced the new shares sold in Taiwan at a marginal 0.3 per cent discount to its then SGX-traded price. Since then, the SGX-listed shares have also enjoyed the higher valuation given to the company's TDRs.
Yangzijiang closed here at $1.90 on Tuesday, while its equivalent closing price in Taipei was $1.89. This meant the shares have rocketed by 61 per cent in the five months since it conceived its plan of TDRs.
For traders, recent efforts by S-chips to do a dual listing surely beat the earlier wave of delistings that deprived them of any upside as the market roared back to life.
Trader John Lee noted that Sihuan Pharmaceutical was taken private at 97.5 cents a share in December last year, valuing the mainland drugmaker at $458.3 million.
But the company is now valued at about HK$30.9 billion (S$5.1 billion), after it relisted in Hong Kong last month and drew investors like billionaire George Soros to put cash in.
If Sihuan had chosen the dual listing route instead, investors here would have reaped some of the benefits when it launched its Hong Kong initial public offering, said Mr Lee
Gaoxian has 3 catalyst coming it's way. First, if the q3 results is ok, it will most prob receive a favorable report by Kevin scully from NRA. Second, approval of dual listing from sgx and krx, which I don't see having any problem. Third, confirmation of listing might result in rerating of it's stock price. I did some research, it takes about 2 to 4 months to get listed in krx. So it's a rather long wait. But I thinks it's worth it. Why? Because I own some shares of Gaoxian hahahah î
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