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Daniel Loh: Shanghai To Correct Soon
Aspire, Thought Leaders | 17 April 2015
By: Vance Wong
Articles (74) Profile

The Shanghai Composite Index (SHCOMP) has seen its highest point since 2008 at over 4,000 points. The bull run does not seem to be stopping any time soon. However, local investment guru Daniel Loh thinks that the index seems to have rallied too fast and too furious. To cool things down a bit, a correction should occur soon.

Source: FactSet Fundamentals

Nevertheless, Daniel Loh recognises that the SHCOMP is still on an uptrend. He thinks that there should be a correction or a short halt before the index continues its flight. Daniel Loh terms this as the second phase of a bull run, which will be discussed more in-depth in his workshop.

What Can You Do Now?

The guru warns that during this second phase of a bull run, investors will find it hard to find attractive companies to invest in. Many are beginning to realise that valuations are getting a bit high. This will ultimately cause the index to increase at a slower pace too.

Under such challenging times, one has to look at fundamental earnings and sustainable net profits of companies for entry points.

“Look at Nikkei in 2013. SHCOMP is following Nikkei now. In less than seven months, Nikkei went from 8000 to 16000.” It was only after Japan’s recent Quantitative Easing (QE) policy that caused the Nikkei to pick up after staying stagnant for two years.

Daniel Loh advises investors to go into a defensive position during the second phase of a bull run. H-REITs, telecommunications and utilities stocks are the safest while aggressive counters are best avoided because of unfavourable risk/reward ratios.

Chinese Telecommunications

The telecommunications landscape in China right now is focused on the network transition from 3G to 4G. The major telco companies are going to be the first few in China to provide 4G service to its users, giving them a significant competitive advantage. In particular, China Unicom seems to be the most attractive, having a recent hike in prices looking optimistic.

Analysts' updates on China Unicom (17/04/2015) Source: FactSet Fundamentals

It can be seen clearly on the graph above that Unicom’s share prices have increased significantly in the past month, hovering around the target price.

Considering that the 4G network service will be rolled out soon, the Average Revenue Per User (ARPU) could potentially increase for Unicom. This will definitely help drive Unicom’s revenue and profit growth well through 2015 and possibly 2016.

Another company worth looking at is ZTE. ZTE is China’s largest listed telecommunications equipment provider. The upward trend looks to be in tandem with ZTE’s recent results that show it is a key beneficiary of China’s move into LTE/4G networks.

Analysts' updates on ZTE (17/04/2015) Source: FactSet Fundamentals

The graph above shows that analysts’ sentiments of ZTE Corporation (ZTE) are rather positive.

To find out more about what you can do in such challenging times, sign up for a free workshop by Daniel Loh. Daniel will touch on several topics which include what investors can do during different cycles of a bull market.

At the same time, Daniel will also talk about how various indices are currently performing. His workshop, spread over two days will be in English and Chinese.

Date: 28 Apr (Tue) English Session
Time: 7pm – 10pm
Venue: 141 cecil street, Tung Ann Association Building #07-02 S(069541)
Tanjong Pagar MRT exit G, cross the traffic light 80 metres ahead
With a Communications background, Vance has the passion to write with a purpose - to provide content supported with substantial evidence to vested readers.

Please click here for more information about this author.

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