INVESTORS might imagine that Singapore-listed China companies would offer some form of a safe haven from current stock market turbulence.
After all, China's economy is still expanding strongly, despite some niggles, while the likes of the United States are faltering.
They should think again.
A recent sell-down in stocks on China bourses and growing inflation worries over the mainland's booming economy have hit these so-called S-chips fairly hard.
The selling pressure has also been triggered by concerns over slowing profit growth, shrinking margins and rising borrowing costs.
So far this year, the FTSE ST China Index, comprising major S-chips, has been the worst performing index. It has fallen over 44 per cent compared to a 14.7 per cent drop for the Straits Times Index.
Current valuations of some stocks, which are trading at low single-digit price-to-earnings ratios, are very attractive, say analysts. This ratio shows how much investors are willing to pay per dollar of earnings. The lower the ratio is, the 'cheaper' the share.
For example, China Sky Chemical Fibre, Celestial NutriFoods and Sino Techfibre are trading at ratios of four to five times their most recent full- year earnings.
'How can you say that is expensive?' asked CIMB-GK analyst Ho Choon Seng. 'Margins are not exactly expanding. With inflation, it is difficult to significantly increase margins. But there is still value to be found.'
'While higher energy, labour and material costs are likely to have an impact on margins for most companies, most are expected to remain profitable and many should still show profit growth - albeit at a lower rate,' said DBS Vickers Securities analyst Paul Yong.
He explained that a combination of poorer-than-expected results as well as corporate governance issues may have exacerbated the price slide of some stocks.
Despite what seems to be a good deal, investors are not biting. Take companies such as Jiutian Chemical Group and frozen dumpling maker Synear Food Holdings which are trading at 80 per cent or more off their 52-week highs.
A remisier with a local brokerage said: 'There are bargains out there, but there's almost no buying interest.'
She added: 'Investors are losing interest partly because there is no breakthrough for most S-chips. The trading range is very tight. Stocks barely budge even when there's good news.'
Clients are now switching to blue chips from S-chips, she said, adding that while there are fewer lots, 'at least there's a range to trade'.
S-chips have also fallen out of favour with syndicates, say sources, which have scaled back trading after suffering substantial losses.
Questions remain as to when the China plays will be able to break the downtrend, which is in turn dependent on the performance of markets in the US and China.
China Life Insurance, China's largest insurer, this week reportedly snapped up large quantities of stock funds, which may signal that there are bargains out there.
Analysts expect the downside to be limited given the extent of declines seen in many S-shares.
A hike of energy prices will push China's inflation 'into double digits', said a BNP Paribas report. It expects at least one more hike before year- end. This may further trigger a sell-down in Chinese bourses.
In a market where prices are static, or falling, it may be a good idea for investors to look for high-yield stocks.
Examples would include China Life and Singapore-listed Memtech International, which have dividend yields of 7.7 per cent and 9 per cent respectively. Mainboard-listed Luzhou Bio-Chem Technology is also offering a 7 per cent dividend yield.
'High-yield stocks should generally outperform high beta stocks in a bear market,' said Mr Yong. Beta stocks carry more risk but have potentially higher returns.
'Given low interest rates, there could be more interest in companies with high dividends,' said Mr Ho. But he added that investors should also consider the growth prospects of the company and whether it is able to support the level of dividend.
No comments:
Post a Comment