Saturday, May 3, 2014

Dr Chan Yan Chong-Commentary 02.05.2014 - More Value In Cutting Up Monopolies? It Depends

More Value In Cutting Up Monopolies? It Depends…

Tension in Ukraine raised by a few notches recently when the Russian parliament authorised Putin to the use of force in Ukraine. Alarmed, the Ukrainian interim government was quick to accuse Putin for trying to start a third world war. The G7 called for an emergency meeting to impose further sanctions against Russia, and that gave the US stock market an excuse for going into adjustment.

The third world war accusation was certainly exaggerated, for that was what the Ukrainian interim government hoped would stimulate the United States to send in troops to help them regain control of eastern Ukraine. On the other hand, America would never do that, because the Crimean region is in fact inhabited by people from Russian descent. Ukraine will hold its presidential election in May, and Putin’s series of actions is calculated to influence its outcome. The biggest problem facing Ukraine today is that of an economic collapse, which will throw the country into poverty and debt. Russia threatened to cut off its gas supply to Ukraine if it does not pay up its outstanding gas bill. Although the European Union (EU) has pledged to help, the Ukrainian government has yet to receive any aid money. The US government has just started redeploying its global strategic plan and pivot back to Asia, and it is not likely to stray from this strategy.

In the current age of globalisation, the price of an extensive economic sanction is not inconsiderable, and it may be a price their own citizens may not be willing to pay. In the case of the EU, which is staring at an impending recession, it is not in a position to impose any crippling sanctions on Russia. Sadly, it is the Ukrainian people that would become the victim of this power struggle between powerful nations.

The stock market in Singapore is currently tracking Wall Street closely and is at a high albeit under pressure. Hong Kong stock market, on the other hand, continues to ride the roller coaster in tandem with the Shanghai stock market. Timed carefully, there is much profit to be made in the midst of the wild swings. In addition, there are many oversold concept stocks in the Hong Kong stock market that can present opportunities, so the bourse is certainly worth your while.

The Hang Seng Index plunged 339 points, or 1.5 percent on 25 April, suffering a larger decline than the Shanghai Composite Index. In the evening, the US stock market also fell markedly, which clearly indicated that the ones responsible for depressing the Hong Kong stock market are American institutions. For the past few years, the Hang Seng had always been the forward indicator of where the US stock market was heading. This is a good thing, for it underscores the importance of Hong Kong as one of the world’s three major stock markets, sharing leadership roles with the London and New York bourses.

Sinopec (0386) announced that it is appointing a number of Chinese and foreign investment banks as advisers in light of its plan to open up 30 percent of its downstream business to private and foreign investors. Ever since Sinopec announced that it would split up its downstream retail business and allow private and foreign investors to take a stake in them, its share price has been on a roll. The reason behind this rally is similar to Hutchison Whampoa’s (0013) recent sale of 25 percent of its stake in Watson’s to Temasek Holdings. This divestment showed investors just how valuable Hutchison Whampoa’s assets are.

In the case of Sinopec’s intention to offer 30 percent of its retail business equity, a number of international investment banks have valued its retail business at equal to Sinopec’s total market capitalisation. This means its upstream and midstream businesses are in effect free. In pursuing this exercise, Sinopec can highlight its value while complying to President Xi Jinping’s economic reform. Xi has repeatedly expressed his intention to open up a large number of businesses that has been monopolised by state-owned companies to private and foreign owners, setting into motion the privatisation plan that his predecessor Hu Jintao did not get to oversee its completion.

It is worthwhile for investors to take a closer look at the Chinese government’s plan to open up businesses currently monopolised by state-owned companies, so as to identify concept stocks similar to Sinopec. This move may not bode well for some current listed state-owned companies. Sinopec opened up by splitting its downstream business, which ended up highlighting the value of its assets and inspiring investor confidence. However, the opening up of other companies may take the form of allowing private funds to take a direct stake in these companies, which could introduce competition and may turn investors off.

When looking for this kind of monopoly-breaking concept stocks, you have to identify if opening up such state-owned companies will highlight the value of their assets or cause them to be susceptible to direct competition from private companies. For the overall economic interests of China, opening up these monopolies is good for the nation, no matter how they are being opened up.

Chinese Premier Li Keqiang’s announcement that China will develop nuclear power plants sent many nuclear power plant stocks soaring. Chasing after rising shares carry significant risks; it is only feasible if you do day trading and you should not take position when share prices have made a significant jump.

Speculating on Chinese policy stocks is highly risky because there are many variables, and there is a long wait between the decision to develop and when the company really starts to make money. In view of the dismal performance of nuclear power shares currently, by the time the Premier’s present decision to develop nuclear power is translated into corporate profits in the future, the fever over such shares will have long been over.

Some years ago, the market went into overdrive when China announced its Rmb4 trillion railroad infrastructure development plan. However, after the Wenzhou high-speed rail collision, China changed its policy suddenly, leaving holders of railroad stocks high and dry till today.

Recently, market speculation has turned back to environmental, wind power and solar energy stocks, generally doubling their prices, though still far from the highs a few years back. Do you think those small investors who bought high and are now stuck will have the courage to invest again? As for investors who cut-loss, they are still reeling from the experience and will not dare to enter the market.

In my first investment article of 2014, I highlighted the need for caution in investing this year. So far, the stock market has gone through many ups and downs, and it is difficult to catch its rhythm. Thus, I decided to bring forward the launch of my book this year, which is entitled《步步为营》(Caution With Every Step). I should clarify in advance that, as a number of articles from my book《时机为王》published late last year share the same theme of caution, I have decided to reprint them in this new book.

Publish date: 05/02/14

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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)



高估期间, 卖对, 不卖也对, 买是错的。
低估期间, 买对, 不买也是对, 卖是错的。

Tan Teng Boo

There’s no such thing as defensive stocks.Every stock can be defensive depending on what price you pay for it and what value you get,
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