Market looking toppish again, switch to defensive stocks

Dow Jones has reached a record high of 13120.94 at last week closing.  It is a trend every year that investors usually sell in May and go away (if you remember what happen last year during the World Cup 2006). 

An excerpt of Market News from the US :

WASHINGTON (MarketWatch) — The sluggish growth in the U.S. economy likely persisted into April, economists said ahead of a busy week on the data calendar.

As is usual in the first week of the month, the focus for traders and economists will be on the nonfarm payrolls report and the Institute for Supply Management index for April. Quarterly productivity data could also raise some eyebrows.

After jumping by 180,000 jobs in March, nonfarm payrolls likely grew at about half that pace in April, economists said. The median forecast of economists surveyed by MarketWatch sees payrolls up by about 98,000, with the unemployment rate bouncing back up to 4.5% from a cyclical low of 4.4%.

Average hourly earnings probably rose 0.3% on the month, our survey says, providing some relief on the inflation front, as the year-over-year increase in wages eased to 3.9% from the peak of 4.3% in December.

Summary:

Switch your small caps stocks to defensive blue chips like SPH, SIA Engineering, ST Eng.  Protect your capital and buy on dip.

Rotary Engineering !

Rotary Engineering (S$1.00) – Opportunities abound
About 80% of Universal Terminal’s capacity on Jurong Island has been taken up, even
before its scheduled completion at end-2007, suggesting the possibility of new
expansion soon. EDB Singapore is expecting the announcement of more projects in
2007 to bring about a significant transformation of the chemical industry in Singapore.
We are optimistic that Rotary can ride the industry upturn to capture a series of projects.
While we maintain our earnings forecasts, we have upgraded our target price to
S$1.19 from S$1.14, as we roll forward our target basis from CY07 to CY08. We
continue to believe Rotary deserves a 15x P/E given its healthy earnings outlook and
prospective order-book expansion. Maintain Outperform.

China shares meltdown

As I’ve highlighted in the earlier post about the valuation of the China stocks which is at an expensive valuation.  The market decided to make a sharp correction to managed the ‘irrational exuberance’ factor in the market.

 The meltdown was caused by big institutional investors selldown to readjust the expectation of the market valuation.  Most who suffered were short term trader and those who borrowed money to purchase shares.

 What’s next ?

The market jittery has caused a weak sentiment right now as HSI and China shares continued their downward trend.  Confidence has been hurt and it will tk a while to recover.

Let the dust to settle before you make your commitment again. 

The China market has become a force to reckon with from now on, no more we just rely on US and Japan market. 

The China market is still growing healthly on a pa basis but when people start to pawn their house or car to buy shares then that’s a bubble in the making.

China Life profit to up 50%

China Life’s net profit growth in 2006 is expected to jump 50 percent, according to a company statement issued Tuesday.

The expected results had not been independently pre-audited, and detailed figures would be released soon in the audited 2006 annual report, the company said.

As the country’s largest life insurer, premium income last year went up by 14.2 percent. The figure, still to be audited, rose to 183.8 billion yuan (23.6 billion U.S. dollars), said the report.

Rapid business expansion and sound momentum in the capital market boosted the 2006 revenue, said the report.

China Life plays a dominant role in the country’s life insurance market. Its premium income reached 160.95 billion yuan in 2005, accounting for 44.1 percent of the total of all life insurers in China.

Net profits in 2005 approached 5.45 billion yuan, with earnings per share reaching 0.2 yuan.

The Hong Kong-listed China Life listed on the Shanghai A-share market this month with an issue price of 18.88 yuan per share. It had jumped 130 percent to close at 43.47 yuan on Thursday. (source : Xinhua)

China’s GDP grew 10.7% last year – an 11-yr high

Interest rate rises expected as inflation hits 2.8% in Dec

(BEIJING) Belying the slowdown theory, China’s economy grew by a sizzling 10.7 per cent last year. The best annual growth figure in 11 years puts the Asian giant well on track to surpass Germany as the world’s third biggest economy next year. (Extracted from source: AFP)

Lyxor China Enterprise (HSCEI) – Buying into the Great Dragon story

Review : A great opportunity for investor to own ‘the proxy to China economy’ the safest way.  You are purchasing a set of Top & Best run China companies.  Current projection of China’s and India’s growth are estimated to be in an explosive figure.  With Beijing’s hosting the Olympic in 2008 (next year), companies are all set to make another leap forward to gain market share. 

1) The telecom industry is set to receive approval from the government to launch 3G.

2) The textile companies are preparing to distribute sportswear to coincide with the Olympic.

3) Energy companies set to increase distribution capacity towards 2008.

4) Huge television rights and contracts deal.

5) Housing loans are growing together with housing demand in major China’s city.

ROI based on last 5 years : 30 % – 32 % p.a

Current valuation : 19 – 20 PE (moderate expensive), Forward PE looks attractive for China growth

FACTS
 

CPF approved	No
First Listing in Singapore	19 Oct 2006
Listed Price	$9.50 (Trading at $12 – $13 in Jan 07)
Traded in Currency	US$
Bloomberg Code	ASI CP
Reuters Code	LASI.SI
Dividends	Yearly

Top 10 Holdings Companies

Petro China	China’s largest energy company.
Bank of China	Second Largest bank in China with presence in HK.
China Life	Listed in the NYSE, China Life is the largest insurance co. in China life insurance market.
China Shenhua	China Shenhua is an integrated coal-based energy company.
China Communication Bank	Among the top 5 leading banks in China.
China Petroleum & Chemical	Known as SINOPEC, is the largest refiner and petrochemical producer in China.  The government owns 71% of SINOPEC.
Bank of Communications	Known as BoCom is among the top 5 lenders in China.  19.9% own by HSBC.
Bank of China	Known as BOC, is the second largest bank in China (top 30 in the world).
China Telecom	China’s largest fixed service telecommunications provider, which includes internet, data and PAS wireless system.
Ping An Insurance	China’s second largest life insurance company.  HSBC owns 19.9% of Ping An through its wholly-owned subsidiary.
Aluminum Corp of China	China’s largest aluminium producer.

Allocation of Sectors

Financials : 46.7%

Energy : 29.7%

Industrial : 6.6%

Basic Materials :  5.5%

Communications : 4.5%

Utilities : 2.9%

Consumer, Cyclicals : 2.3%

Consumer, Non-Cyclicals : 1.8%

Investing in ETF (Exchange Traded Fund)

What are ETF ?

ETFs are funds that trade throughout the day over an exchange. Most ETFs track an index, such as the Standard & Poor’s 500 Index or the MSCI India – iShares . 

ETFs are not closed-end funds, and the fund companies do not redeem shares for cash.

ETFs are generally valued at close to their net asset value (NAV), although they sometimes trade at a slight discount or premium.

They have grown in popularity in recent years because they give an investor the opportunity to invest in an index or sector without exposing him to the risk of a single stock. In July 2005, there were $252.3 billion in ETFs.

Advantages of ETF for a retail investor (like you and me)

1. They are passively managed, ETFs have low annual expenses. No conversion fee like in unit trust.
2. Buying into an ETF could bring down your risk exposure by heavily invested in stocks.  By buying into an ETF, an investor has added a diversification flavour into his/her portfolio.
3. An investor can easily buy and track the price of an ETF using your online brokerage account.

Some cons in ETF:

1. Although I mentioned that ETF could reduce your risk exposure of market volatility, however ETFs are not spared from a market meltdown situation like 9/11 or SARS event.

2. Singapore based ETFs are not heavily traded.  Due to the reason that ETFs are still very new to Singapore investors, daily transactions volume are be very low.  In another words, you won’t be able to purchase or sell your ETFs easily on a trading day. 

Heavily traded ETFs are mostly traded in the NASDAQ or Dow Jones (I will talk about it in the future as we progress further).