Saturday, January 09, 2016

Scenario of Stock Market Euphoria

Scenario of Stock Market Euphoria

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria / Sir John Templeton

The last stage of a bull market is euphoric. It is important to know the scenario of such a market so as not to be deluded by the madness of the crowd.

In an euphoric market, optimism is at its extreme. Price-rise is an expectation. Newbies come in drove to open accounts with broker firms. More and more housewives get involved. Shoe-shine boys, ice-creme sellers and poor farmers will also be talking about the market. By then the market is a hive of activity.

The public flocks to the boardroom every trading day. Financial news is good. Price advances are spectacular and frequently made head lines in local newspapers. The dogs and cats (low-price stocks of no investment value) are whirled up, but big blues refuse to rise further. Volume continues to rise and speculation is on the rampage. In every corner of the town people are talking and boasting of their gains in the stock market. 

Stocks will be trading and very high PE and low-dividend yield. Every tip you get is a good tip; everyone is an expert as prices continue to move up day after day. 

Boardrooms in broker firms are crowded as soon as the market opens. All seats available will be fully occupied; people will be standing here and there.

IPOs (initial public offerings) become more often, and most are oversubscribed by close to a hundred times. 

The craziest thing is that warrants can be higher than the mother shares. People simply throw cautious to the wind, become illogical and mad! Then you hear someone says, “this time is different). 

The truth is that, like all bull markets, this too will pass. It will not be unlike any other bull markets. If you are lucky to see such a scenario, be wise enough to sell everything, and sell short if you are allowed. Remember what the great investor Warren Buffet said, “Be fearful when others are greedy.” 

Euphoria has no time limit. It can lasts for months, weeks or even days. You must get out in time. For when the market finally reverses, the way down will be fast, furious and cruel. The majority will be hurt; they will be devastated. Don’t be one of them.

Are we anywhere near a market on euphoria? 

Fundamentally sound stocks giving 4 to 5% dividend yield are still available presently, and volume transacted daily is normal, 1 billion plus. I think we are far from there. When volume transacted daily is over a few billion units, its time to worry.

Notwithstanding the truth and opinion expressed above, stock markets are always uncertain. 

You listen to me at your own risk.

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Tuesday, January 05, 2016

Xinghe A Potential Dark Horse

Supreme Global Group Ltd (SGGL) is a Hong Kong registered company. It has a 91.15% subsidiary known as Henan Xinghe which manufactures and trades edible oil, mainly peanut and other blended oil. SGGL got listed in Bursa via a reverse takeover (RTO) exercise in April, 2014. 

Key West, a GN3 status company in Bursa issued 1.9 billion shares at 11.05 sen per share to take over SGGL valued at RM210m. In a private placement, it also issued 300 million shares at 20 sen per share. Shortly after the RTO, the name Key West was changed to Xinghe. 

On 29 April 2014, Xinghe debuted at 25 sen, moved up to 26 sen and closed at 22 sen. The highest it went up was 29 sen some time later before easing all the way down in a roller-coaster ride to below 7 sen.

Now at 6.5 sen, is this a good stock to buy? Is this another risky and useless China-based stock? Let us have a look at its balance sheet and earnings.

As at 30.9.15 

Paid-up capital : RM234.850m
Par Value : 10 sen per share
No. of shares issued : 2.3485b
NTA : 23 sen per share
EPS for the quarter ended 30.9.15 : 0.77 sen
Non-current assets : 37.732m
Current assets : 549.186m
Current Liabilities : 19.675m
Current Ratio : 27.91 (This is fantastic)
Cash : RM373.27m (Excellent)
Borrowings : RM29.072m
Final dividend paid on 21.9.15 : 0.2 sen

On 25.3.15, 1.17425b bonus warrants of 1 for 2 were issued. These warrants are convertible to ordinary shares at 10 sen per warrant. The expiry date is 22 March 2019.

From the above info, it can be seen that the company has a very strong balance sheet with plenty of cash and little borrowings. If it is not China-based, this stock is easily worth 50 sen a share. 

Other points to note are:

SSGL is 10% owned by the China Government. The Chinese government is very serious in dealing with corruption. So, hopefully, there won’t be any hanky panky in the company.

Henan Xinghe is one the top six edible oil producers in China. It is mainly involved in producing edible vegetable oil as well as peanut protein cake in the China market. 

It is a profitable company with ambitious plan for the future. It intends to produce peanut protein to compete with soybean protein by 2017. According to its MD, peanut protein is a better product than soybean protein. 

It uses lots of palm oil as its feedstocks, and that is the main reason why SSGL wants a listing in Bursa, according to its CEO. Its presence in Malaysia is good for the palm oil industry.

The company has a dividend policy of paying 15% of its earnings as dividends.

At the last traded price of 6.5 sen, I am of the opinion that the stock is a good buy. The stock has been crawling at the bottom for many months. To me, this is an accumulation by savvy investors.

Will this ugly duckling turn into a golden swan someday? The potential is there, but only time will tell. Best action to take is to buy some now at 6.5 sen, and watch the stock closely. Chase only when the 7 sen level is decisively breached. 

Trading or investing is never without risk. You buy at your own risk absolutely.

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Friday, January 01, 2016

My Stock Picks for 2016

I choose the following stocks for investment in 2016:

Kim Hin RM2.28

Gadang RM2.12





I believe these 6 stocks will be much higher by end Dec 2016. They are all dividend-paying stocks with strong fundamentals.

May 2016 be a much better year than 2015, and may all my readers be blessed with good health, good luck and much prosperity for the new year. 

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