Friday, December 6, 2013

Dr ChanYanChong-Commentary - 06.12.2013

06 DECEMBER 2013
Hong Kong Stock Market Hits New High For 2013; Worth A Look At
By Dr Chan Yan Chong

The Hang Seng Index (HSI) hitting the much awaited new high of the year is worth celebrating. I have been reminding readers umpteen times in the last few months that Hong Kong counters are trading below their valuations, be it in terms of their price-to-earnings or price-to-book ratios. So let us anticipate the future with optimism. Moreover, the mid-to-small cap counters listed in Hong Kong have been trading like hotcakes in the past few months; a prolonged surge is unlikely to be seen if the market were weak. Following HSI’s new high of the year, it is natural to pin hopes on the index to set the next historic high. It is rare that HSI has shunned away from a new historic high since logging the last one in 2007.

Then again, why has the Singapore market remain sluggish? On the other hand, the US stock market has rallied strongly. The Dow Jones Industrial Average has on 5 March crossed above its historic high of 14,198 points achieved in 2007 and continued to set multiple new highs. The Straits Times Index (STI) has gone up to as high as 3,464 points in May with a solid momentum. But alas, it took a sharp about turn when words about the US Federal Reserve’s possible tapering were released. The STI fell below 3,000 points in September to reach a new low of the year. Although it rebounded thereafter, it was moving side-ways around 3,200 points and remained range-bounded for a long time. Why has the Singapore market not hit a new high like the US or the Hong Kong markets?

A closer look reveals that, Hong Kong’s new high of the year is merely at 75 percent of its high point in 2007, whereas Singapore’s current trading level has reached 82 percent of its high point in 2007. So in a nutshell, the Singapore market is still ahead that of Hong Kong. Foreign investors have been making a beeline for Hong Kong counters because the market is deemed a laggard, coupled with the anticipation of the government allowing income earned in Shanghai to be invested in Hong Kong shares, hence, they see a potential there. So you may want to consider investing in Hong Kong shares too.

A possible reason that enabled Hong Kong shares to decouple from the China stock market is the release of a proposal that focuses on the new plan for direct investment in Hong Kong shares. It is suggested in the proposal that residents working in the Shanghai free-trade trial zone are permitted to remit their after-tax income out of the country, including for the purpose of investing in Hong Kong shares. I think that this suggestion would very likely get the go ahead, because it is limited to income earned from employment and the amount will not be too large. China’s Third Plenum has decided that, the proven model used in Shanghai may be replicated in other coastal cities. This implies the multiplication of such free trade zone trials, and when it materialises, the pool of income that can be remitted out will be significant and will directly benefit the Hong Kong market.

The current amount of Chinese yuan available in Hong Kong is just a tad less than Rmb1 trillion. Hence, individuals in Hong Kong facing limits to buy and sell offshore Chinese yuan are no longer an issue. I believe the day is near for Hong Kong people to freely exchange offshore Chinese yuan. When the day comes, Hong Kong people will be buying the currency like nobody’s business, expecting it to appreciate over time.

Many years ago, when China’s four leading banks were poised to list on Hong Kong’s stock market, comments were made by foreign brokerage houses that these banks were theoretically bankrupt. The reason lies in the tonnes of non-performing assets these banks were holding. According to common guidelines in other countries, such potential bad debts are to be dramatically written down. As such, in the case of the Chinese banks, they are deemed to be holding onto negative assets.

In order to clear these state-owned banks of their potential bad debts, China’s Ministry of Finance bought over these assets. Four companies designated to handle these potential bad debts were set up and one of them, China Cinda Asset Management, has just got itself listed in Hong Kong. Being a business that acquires non-performing assets, it is also the first of its kind to be listed on the Hong Kong stock market, and its initial public offering (IPO) was a hit with investors.

Back then, the four state-owned Chinese banks had another concern of being brushed aside by condescending international investors even after polishing their balance sheets. As a result, major banks in the US were pursued as cornerstone investors and low IPO prices were offered. Warmly welcomed by the market, many US banks also sought to be the cornerstone investors by subscribing generously to the IPO shares of the four banks.

During the US financial crisis the US banks which had bought shares of the Chinese banks divested their shareholdings and made a considerable profit to tide over the difficult period. This is proof of the remarkable performances by these Chinese banks, which were once said to be “theoretically bankrupt”. Yet the market values of these Chinese banks have now surpassed those of US banks.

Another Chinese financial enterprise has also made it to the Hong Kong exchange recently. Based in Foshan, a city in Guangdong Province, Foshan China Success Finance Group Holdings specialises in providing financial guarantee to clients who wish to obtain loans from banks or other financial institutions. Foshan is not the place to be when it comes to banking and finance, yet a finance company born here has garnered a place on the main board of the Hong Kong market. While it is the first of such nature of business to be listed in Hong Kong, I believe that there are many more of such enterprises all over the country that are established enough to be listed on the main board in Hong Kong. By this example of an innovative business, talents within the Chinese financial sector are on a rapid rise.

Many still hold the view that banking and financial talents as well as regulatory mechanisms in Singapore and Hong Kong are far more sophisticated than in China. However, judging from the performances of the two recently Hong Kong-listed Chinese financial players, it is clear that the Chinese financial sector is a force to reckon with. If we are complacent, China’s financial business will overtake Singapore and Hong Kong in no time. The challenge has actually begun.

Thanksgiving shopping has kick-started in the US. It is said that, sales brought in during Thanksgiving at some departmental stores outweighed total sales recorded during the rest of the year. And then there will be Christmas shopping. Nonetheless, excellent sales from Thanksgiving do not solely come from the need to get gifts, promotions and discounts do wonders too. Impressive sales figures will send share prices of US counters Northwards.

Publish date: 06/12/13

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Warren E. Buffett(沃伦•巴菲特)
Be fearful when others are greedy, and be greedy when others are fearful
别人贪婪时我恐惧, 别人恐惧时我贪婪
投资只需学好两门课: 一,是如何给企业估值,二,是如何看待股市波动
吉姆·罗杰斯(Jim Rogers)

乔治·索罗斯(George Soros)



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低估期间, 买对, 不买也是对, 卖是错的。

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