Heiwa's View

In my personal opinion, the stock market has yet to bottom out. But after the steep plunge from May to Oct 08, the market is trying to make a technical rebound which might last a few months.

This is stimulated by a few factors, namely;

• Aggressive stimulus actions taken by governments worldwide to increase liquidity, domestic expenditure and trade policies
• Typical year end boost in demand for seasonal sectors like energy
• Expectations of supply cuts for crude oil with OPEC trying to gain support from non OPEC members
• Expectations of year end and Chinese new year rally…haha, and finally
• Technical of charts consolidating, trying to recover from oversold position.

As for portfolio selection, my rule is during rebound, avoid defensive, and go for more volatile or ‘high beta’ counters. When all the celebration is over and index starts to retrace, revert your portfolio back to defensive.

In current market, my 1^st rule is cash reserves must cover at least 70% short term debt.

1. Golden agri covers only 39%, cheap but stock speculative in nature
2. SPC covers only 28%, big company but again speculative in nature
3. UIC covers 15%, not speculative but number implies refinancing risks
4. CSE covers 46%, not too bad but I only accept the best

*Speculative in this context refers to anticipation of oil price movements. Many debate that oil is a limited resource, therefore the price has only 1 way to go, up. They said the same thing when oil was falling from US$147 to current US$50+ range. No doubt there is some truth to this statement, but if, yes if oil goes below US$40, companies will start to fall.

Defensive companies in this case are namely;

1. SPH, no short term refinancing issues
2. SMRT, low refinancing risks

But pricing is not favorable, and now with the index trying to post a rebound, defensive counters will be neglected.

High beta counters are preferred in times of market rebound, as high beta means ‘moving more then the market’, or simple terms ‘volatile’.

1. Kep t&t, beta 1.8, no short term refinancing issue
2. Kepcorp, beta 1.5, strong cash position
3. DBS, beta 1.1.

Lastly, some other companies;

1. Genting, a rumor driven company with well liked gambling business. Cash position is strong but bulks of assets are made up of intangibles, posing risks of further impairment. For investment purpose, I will wait for a cheaper price. For speculation, I will ride the wave.
2. Cambridge just resolved their short term refinancing concerns, which led to the recent rebound in price. Dividend yield is attractive. I don’t really have an opinion on this but JP Morgan has a target of 38c and BNP targets 56c. Current price 28c.

And finally, to end off, I’ll like to state that these are my personal opinion.