The stock market, which had tumbled since the beginning of the year, finally saw a reverse yesterday (Jan. 14). The ChiNext Board, the market for emerging industry companies, pulled up significantly. Institutions believe that days of decline have fully reflected the impact of adverse factors in the near term, and the market has entered value investing region. Though the strength and continuity of rebound is remain to be observed, bounce of the emerging sector has boosted the sentiment of the market. Hereafter, the market is expected to fluctuate at the bottom. Companies with good performance, uniqueness and safety investment assurance are expected to lead continuous rebound.
Some institutions recommend the current points as entry
Since the beginning of the year, affected by high volatility of exchange rates, weak economic data and a lack of momentum, the market slid sharply after trading sideways for a long time. Withdrawal of capitals caused massive panic sell-offs on the market, which triggered the circuit breaker for four times in just two trading days and led the market to close ahead of time unprecedentedly. Panic effect brought by the plummets frightened market participants. Particularly, even a slight dip at the closing trading would turned into massive sell-offs. Following constant slumps, some institutions are in the view that the market has entered value investing region.
A fund manager with neutral investment style in south China suggested since the rise from earlier November last year, the market has been stagnant for long and become less profitable. Therefore, investors tend to be more prudent. But under the pressure of ranking at the year end, public funds generally kept heavy positions. As the year end ranking competition is over, such institutions’ position adjustments, coupled with highly volatile exchange rate fluctuation and the implementation of the new circuit breaker mechanism, fear of market liquidity drain has exemplified fluctuation of the market. But after continuous drop, the market has fundamentally fallen to the bottom, and thus further decline is limited. “Public funds’ holdings can be roughly classified as core varieties and non-core varieties. The former are heavily invested stocks which fund managers are optimistic about and have held for long, and usually such stocks won’t be sold unless the logic behind the holding changed fundamentally. Also, since the position is heavy, public funds would instead crush their own holding if they were to sell such stocks. The latter are stocks for gambling, which will be sold first once the market is gloomy. Based on current market situation, the gambling varieties might have been basically sold out. And the core varieties won’t be sold unless extreme redemptions happened”.
Another fund manager indicated that after continuous decline, a less profitable market frustrates investors. As private funds are pursuing absolute gains, they will not enter the market easily. Though the market has rebounded, there is no clear sign of a turnaround. The market can only find a direction when stocks are fully switched among investors and potential bad news is digested. A fund manager with steady investment style in Shanghai still foresees a bearish market, because he “currently cannot find a reason that supports the market to go up, and potential bearish news has not been eliminated completely”.
Selected stocks and sectors
For the rebound rules at the bottom of a rapidly falling market similar to that of last June, someone concluded it as “buy in morning session tumbling, sell in morning session surge; not to follow afternoon session surge, buy in the next morning session instead after afternoon session tumbling; not to sell in morning session plummet, take a break when it is flat”. Such theory full of folk wisdom is tested as true in the first plummet in the middle of last year. A private equity fund manager in Shanghai is in the view that the above verified maxim reflected investors’ psychology in response to the market.
The reporter learnt that under the current situation when panic on the market have already alleviated, investors may gain profits by capitalizing on opportunities from the following aspects: firstly, select stocks whose performance will certainly support the prices, since performance is always what carries core value of listed companies. When the market drops in panic, stocks supported by good performance would stabilize first. According to recent observation, East Money Information Co., ltd. (300059.SZ), Hithink RoyalFlush Information Network Co., Ltd. (300033.SZ) and core new energy concept stocks with boom industry prospect that may drive the performance higher have already stabilized late last week.
Secondly, companies with safety investment assurance. For example, companies that are undertaking private placement, especially those in post-hearing stage, or companies whose private placement failed earlier as a result of market fluctuation, but have issued new private placement plans recently. If substantial shareholders or senior management of such companies intend to participate in private placement, and the price on secondary market is lower than issuing price of private placement, the company will have the impetus to pull up its valuation. For example, Shenzhen Deren Electronic Co., Ltd. (002055.SZ) and Zhejiang Jingu Co., Ltd. (002488.SZ), which devoted to the Internet of Vehicles and automobile after-sales services, had still dropped below issuing prices after revised private placement plan and submitted files for approval. Shareholders then got the impetus to support the market. Particularly, actual controller and chairman of the board of Deren Electronic and Zhou Er, party acting in concert, have significantly increased holding in an amount of 40 million yuan. Investors may search such types of companies. With endorsement of substantial shareholders and institutions, investment is more safety ensured.
At last, companies resumed trading recently, especially those that have good news but fell amid market downturn. It is learnt that during the M&A and reorganization of listed companies, capitals would hide in an early stage, or enter for a gambling after a listed company resumed trading, which would result in the price to surge. Companies that have risen after resumption of trading but dropped in the past few trading days including Furen Pharmaceutical Group Industry Co., Ltd. (600781.SH), Jiangsu Chengxing Phosph-Chemical Co., Ltd. (600078.SH), Tianze Information Industry Inc. (300209.SZ), Zhejiang Dilong New Material Co., ltd. (002247.SZ) and Gosun Holding Co., Ltd. (000971.SZ). Industry insiders believe that in extremely panic atmosphere, good news may be distorted by the market. If investors are able to understand the value of a company and find an entry in extreme market conditions, they can usually gain more. For instances, some stocks resumed trading at the beginning of last August and encountered the plummet at the end of that month, but after that they surged over two times in the rebounds; Ciwen Media Co., Ltd. (002343.SZ, previously known as Zhejiang Hexin Ind Grp Co., Ltd.) resumed trading before the slump last year and suffered excessive price decrease amidst extreme market, but later it rebound over three times from the bottom.
Translated by Adam Zhang
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