Forget Password?
  1. Indices
  2. Commodities
  3. Currencies
Straits Times 3,211.49 +16.53 +0.52%
Hang Seng 27,352.69 +265.06 +0.98%
Dow Jones 27,219.52 +37.07 +0.14%
Shanghai Composite 3,031.24 +22.42 +0.75%
Howie Lee: Consistent Profits From China A50 With 40-Tick Strategy
Aspire, Thought Leaders | 10 June 2015
By: Vance Wong
Articles (74) Profile

Phillip Futures investment analyst Howie Lee brought something novel to the table: a strategy that can help investors earn small profits consistently, the 40-tick strategy. However, Howie emphasised that this will only work on the China A50 Index.

It comprises the top 50 listed blue chip companies in China and since the Shanghai-Hong Kong Stock Connect (SHKSC), it is now easier for many Singapore investors to buy A- and H-shares.

Reasons To Get Into A50

A50 Index as at 28/05/2015

Investors would be thinking that since the SHKSC has materialised, it gives them much easier access to Chinese stocks. However, Howie pointed out that many local investors have minimum knowledge about Chinese companies, increasing their exposure to risks.

Investing in the A50 Index solves this knowledge gap and diversifying the risk across a wide range of blue chips. Risk management is key in an emerging and volatile market like China’s. A basket of stable blue chips ensures that a few declining stocks would be supported by the other stronger ones.

As such, it is a much more stable buy compared to individual A-shares that are very volatile at the moment. In the event of a falling market, one can also hold onto one’s position and try to short-sell for additional profits while waiting for its rebound.

Last but not least, Howie did an analysis and found out just last year that emerging markets, like China, India and Indonesia, have outperformed the Standard and Poor’s 500 Index (S&P 500). As such, he feels that the A50 is a very good addition to one’s portfolio if one is interested in the Chinese market.

40-Tick Strategy

Howie Lee's 40-Tick Strategy

Howie mentioned that the A50 would typically fluctuate about 100 to 200 Basis Points (BPs) or 40 to 80 ticks per day, and even up to 100 to 120 ticks on high days. As such, he came up with a 40-tick strategy, meant to catch just 40 ticks in a single trade.

For this strategy to work in one’s favour, discipline and not succumbing to greed are key areas to focus on. Howie explained that the profits of 40 ticks equate to about US$100 per successful trade. Most importantly, it is not hard at all to catch the 40 ticks, be it short or long trades.

However, because of how simple and low-risk these trades are, investors tend to get greedy. He emphasised the importance of treating the 40-tick strategy as an addition to one’s monthly salary or long-term investments. “This is by no means a get-rich-quick strategy.”

Investors’ Takeaway

It does not matter if you are an investor that is looking for a long-term position or an intraday stock trader, Howie thinks that the A50 Index is a low-risk and good avenue for everyone to consider when looking at Chinese stocks.

Key things to take note for long-term investors are patience and composure when the A50 declines slightly, take the opportunity to short-sell for additional profits. For intraday traders, be disciplined and resist the temptation of greed to prevent unexpected downturns.

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.

Join The Conversation
The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

All Rights Reserved. Pioneers & Leaders (Publishers) Pte Ltd. Best viewed with Mozilla Firefox 3.5 and above.