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Dr Chan: Discover Hidden Gems In Manufacturing Stocks
Not long ago, Kingboard Chemical Holdings Ltd (148.HK) had bought a large number of shares of Cathay Pacific Airways Ltd (293.HK).
Thanks to Kingboard Chemical’s heavy purchase, the share price of Cathay Pacific Airways rose repeatedly, from HK$10 to HK$12.
Back then, I had followed Kingboard Chemical and bought Cathay Pacific Airways shares as well.
Can Cathay Pacific Airways support its own share price?
It was suddenly reported in the newspapers that Kingboard Chemical’s shareholdings in Cathay Pacific have already reached 9.9% – they couldn’t accumulate any more shares.
Any further increase in holdings would make the Securities and Futures Commission decide that Kingboard Chemical is affiliated with Swire Pacific Ltd (019.HK) and Air China Ltd (753.HK).
In that case, the three companies cannot own more than 75% of Cathay’s shares in total. Currently, Swire Pacific and Air China already own 75% of Cathay’s shares.
With the addition of Kingboard Chemical’s ownership, they would own 85% in total. Therefore, Kingboard Chemical had to stop buying, and the share price of Cathay Pacific fell as a result.
Fortunately, the fall was not a great one, and I decided to hold on to Cathay Pacific shares and wait things out.
I think Cathay Pacific’s business should start seeing improvements. After all, its management has publicly announced many times that the worst is over for Cathay Pacific.
Furthermore, big investment banks have written positive things about Cathay Pacific in their reports, which caused Cathay Pacific’s share price to rise quickly by 3.91%, which is near a new 52-week high.
Again, the reason is that “the worst is over for Cathay”.
Hopefully, Cathay Pacific would be able to support and even drive up its share price in future with robust fundamentals.
The rise of technology stocks is worrying
The US stock market, led by the rise of tech stocks, has hit a new record high again.
I believe this will drive up Hong Kong tech stocks too. The share prices of tech stocks have been rising for very long, and the rise is worrying.
However, retail investors who sold tech stocks because of the fear of them being overvalued would regret if prices were to continue to climb.
As time passes, some retail investors holding tech stocks wouldn’t dare to sell anymore. Not sure if that’s a good or bad thing?
Singapore’s economic growth better than expected
Singapore’s gross domestic product (GDP) increased by 6.3% year-on-year in the third quarter of 2017, which beat market expectations by a large margin.
As an export-oriented economy, Singapore’s economic growth is connected to the global economic environment.
Thus, the improvement of Singapore’s economy implies that the global economic environment has improved and led to the recovery of Singapore’s manufacturing industry.
Similarly, China’s manufacturing industry should be performing ideally. Perhaps, we can spend some time “treasure-hunting” in this sector.
For quite a long time, investors have shown little interest in owning manufacturing stocks as they think that the gross profit margin of the manufacturing industry is very low and the growth rate is limited.
However, some “tech stocks” that are currently going through speculation in the market should actually be classified under “manufacturing stocks”.
Dr Chan Yan Chong is a renowned investment expert with decades of experience in investing. He’s guided retail investors through the various financial crises and stock market corrections and crashes. Dr Chan is speaking at our upcoming Shares Investment Conference 2H2017《股林大会》(Chinese event) on 4 November 2016 along with Buck Tan Mu Kun, Goh Mou Lih and Liu Jin Shu, who are all regular 958fm guests. Click on the button below to learn more.
This article was translated from Chinese to English by Chen Xushuang. Click here to read the original article.
