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Be Selective In HK Property Stocks; Chinese Shares To Extend 7-Year Highs
By: Dr Chan Yan Chong
Articles (200) Profile

20 years ago, news of Singapore’s founding Prime Minister Lee Kuan Yew being hospitalised would have caused the local stock market to crash. However, the Singapore stock market held on steadily on 23 March, the day Lee passed away. That week, the local benchmark rose marginally. This shows that Singapore is now prepared for the post-Lee era.

Singapore Private Properties Booming

It is easier to get rich by speculating on properties in Hong Kong as compared to Singapore. Singapore companies and individuals dealing in property investments are seeking opportunities in Hong Kong, including Singapore government’s investment arm, Temasek Holdings.

From an investment perspective, the appreciation potential of public housing flats is way lower than that of private properties. With more Singaporeans getting rich and the limited supply of private houses, prices of private residences are rising at an amazing rate.

Volatile Markets For Smart Investors

Furthermore, the Singapore stock market is also less volatile than in Hong Kong. Investors with good judgement and luck thrive in a volatile market. Hong Kong’s stock market also offers one more advantage over Singapore’s – the availability of quality China A-shares and H-shares.

Interested to know more about the Hong Kong market – the second top performer in Asia – with year-to-date gains in excess of 15 percent? Shares Investment now covers the Hong Kong market. Featured in our odd-numbered issues, you can find a curated list of companies that represents what the investing community is fixated on. Be sure to check them out in issue #509 which will be published on 27 April 2015!

Even though some Chinese private companies are listed in Singapore (S-chips), their quality is far inferior to the H-shares in Hong Kong, and these S-chips have actually generated losses for many Singaporean investors.

Political Wisdom Of HK Super Rich

Li Ka-Shing paying respects to late Lee Kuan Yew

Upon hearing Lee Kuan Yew’s death, Li Ka-shing, chairman of CK Hutchison Holdings (0001), flew immediately to Singapore with his two sons. This demonstration of political wisdom alone is enough to convince investors to hold on to CK Hutchison shares for the long term.

The success of Hong Kong’s super-rich is no accident. This is the reason I pay much attention to the words and deeds of these super-rich, from which I hope to derive cues for my investments.

HK Properties Supply Glut

About two years ago, Henderson Land Development Co’s (0012) Lee Shau-kee openly said “It is better to buy shares than properties, particularly property shares.” After hearing this, I immediately bought shares of Henderson Land and have held them till now. I have since made money both on paper profit and bonus shares issued.

Recently, Lee Shau-kee gave another reading of the stock market. According to him, the Hang Seng Index may hit 27,000 points by end of this year, and he is particularly optimistic about property stocks.

He pointed out that the stock market is a better investment than properties, as it is difficult to make money from the property market – with the expected supply glut in two to three years’ time and the thin margin after paying for stamp duties and property agents’ commissions.

On the other hand, you can expect a twenty to thirty percent return on shares, and the taxes are not burdensome.

While it is true that Hong Kong property stocks are displaying an impressive uptrend, some have performed rather badly in 2014 and in 1Q15. Therefore, one needs to be selective.

Do Not Buy Into HK Properties Now

Back in those days when the government had not implemented property cooling measures, many property investors went on a buying spree and they would liquidate once prices rose, and then use the money they made to buy more houses.

However, property prices fell eventually. When that happened, these speculators, who kept increasing their investments while getting more loans, might end up losing everything and become bankrupt.

Likewise, developers may also go bust, so the most important thing is to have good risk management.

The conclusion: everyone is faced with financial pressure when property prices fall, investors and developers alike. The super-conservatives who do not borrow money or only borrow a little, they are very safe and free from financial pressures; but it is also very difficult for them to become rich, because the rate at which they are earning is slow.

Buy Into SHCOMP Now

The US stock market is still caught in the situation of undergoing a correction whenever it hits a new high. However, the prolonged bull run is still going strong, and the bourse would always return to hit new highs. The best strategy then is to wait and take advantage of each correction to go bargain hunting.

China A-shares are on a roll, with the Shanghai Composite Index (SHCOMP) hitting new seven-year highs in succession, and I continue to be optimistic about its performance. I would advise investors to buy A-shares directly through the Shanghai-Hong Kong Stock Connect scheme or to buy Chinese A-shares exchange-traded funds (ETF) listed in Singapore.

The SHCOMP started lifting off from 2,000 points last year, and has since broken the 2009 high of 3,478 points. Its next resistance level is at 4,000 points, double of the 2,000-point level the index took off from, and it is also a neatly rounded off number, so do expect a huge amount of psychological resistance.

Singapore and Hong Kong’s stock markets have performed decently, though they are still trying to catch up with China and the US. Though the Singapore’s Straits Times Index is 12 percent off its historic high, many of its constituent stocks have hit record highs.

These shares are the movers of the index, so for now, it might be best to take advantage of this period of minor correction and buy into those stocks that had recently hit record highs.

Shortage Of Cargo Ships; Buy Oil

Yemen has fallen into anarchy. The country’s strategic location at the Southwestern tip of the Arabian Peninsula means it effectively controls the entrance to the Red Sea. If its political situation worsens, cargo ships will not dare to enter the Red Sea.

Ships heading for Europe from the Indian Ocean must then go around the Cape of Good Hope in South Africa, which entails taking a much longer.

This immediately presents the problem of a global shortage of cargo ships. With fewer ships to go around, freight costs will surely rise, and this gives shipping stocks a precious opportunity for a major lift.

Coincidentally, Neptune Orient Lines (NOL) shares also saw speculative buying recently, with the market awash with rumours that Temasek Holdings is looking to sell its stakes in the firm.

At the same time, Hong Kong’s Orient Overseas International (0316) also announced plans to invest US$900 million in six new vessels.

When shipping companies start placing orders for new ships, they are sending a very clear signal: the shipping industry is recovering. It is therefore advisable to buy shipping stocks now while they are still priced very low and hold on to them for more good news to follow.

If ships plying the Europe-Asia route do indeed need to pass around the Cape of Good Hope, they are going to burn more fuel, which will in turn push up oil prices. Thus, you should also keep oil stocks in sight.

Dr Chan Yan Chong is a renowned investment expert with many accolades under his belt.

Please click here for more information about this author.

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