Time

Wednesday, July 23, 2008

Two-pronged strategy makes sense for bombed out old hot China favourites

Today may well mark the start of an “Olympics” rally for China stocks on SGX.

Last year’s hot favourites especially mid to big cap stocks with sound fundamentals and proven earnings track record have crashed from around two-thirds to 75% from their peaks with many below their IPO prices – the benchmark Shanghai SE Composite Index has crashed 58% from its Oct record 6124 high to 2567 early this month.

It makes sound strategy for players to move perhaps even aggressively into these stocks both for short term trading as well as investment as gains can be made on technical rebounds which we are witnessing today and as medium to long term investments for chances of making 30-50% gains within the next one year should be bright with limited 5-15% downside risks.

It is highly unlikely that the major China indices would lose two-thirds of their values – we have already seen 58% crash from peak to recent “bottom” which means at worst the downside would be around 2200-2300 on SCI (today at 2837).

It is also unlikely that China would crash more than Vietnam, which was down 67% from 1111 to 364 last month on the Ho Chi Minh stock index but is recovering well now, up 22.5% from bottom to 446 today, still down 60% from peak.

The 3 China stocks on the STI – Cosco, Yangijiang and Yanlord – would easily come to mind as “safer” bets but there are many former hot stocks including FerroChina, Fibrechem, Sino Techfibre, Synear Foods, China Hongzing and Li Heng, which deserve a fresh look.

Cosco ($3.20) crashed 66% from $8.20 to $2.79, should recover further to around $3.50 and $3.70-90 in the short and medium term. YZJ (80 cents) down a massive 73% from $2.87 to 76.5 cents can recover to 90-95c once resistance at 84-85c is overcome.

Yanlord ($2.12) which has lost 63% from $4.40 to $1.65 has short term hurdle at $2.30 but medium term $2.70-80 should be a fair target.

FerroChina ($1.22) has also crashed from $2.87 to $1.02, down 64%, should overcome $1.30 and move to $1.50-60.

Fibrechem (63c) down 72% from $1.90 to 53.5c, should rebound to 67-68c and later to 74-75c.

Sino Techfibre (56c) has recovered from its 44.5c low, down 74% from $1.73 peak and should be able to move above 60c to 64-65c.

Synear Foods (45.5c) lost 85% from $2.52 to 37c, and should rebound back to this month’s 50-52c high.

China Hongxing (51c) down 72% from $1.45 to 40.5c, should recover to 58-59c and later to 68-70c.

Li Heng (61c) has lost 44% from 87c to 49c, and is below March IPO price of 80c. Its strong rebound from 49c on good volumes imply likely test of 65-68c resistance.

No comments: