Previously, I have recommended Orient Overseas International Ltd (316.HK) and Cathay Pacific Airways Ltd (293.HK) to investors.
It turned out that the share price of Orient Overseas International rose by 5.08% on the same day, though it had nothing to do with my recommendation. I was merely lucky that COSCO SHIPPING Holdings Co Ltd (1919.HK) had issued an earnings alert that day with the announcement of a turnaround.
The share price of COSCO SHIPPING surged by 11.2% that day, and Orient Overseas International, which belongs to the same sector, was driven up by speculation in the meantime.
Strong stocks taking a momentary break
The focus of the stock market was on strong stocks for the first half of this year. However, among the blue chips stocks that can be classified as strong stocks, it’s the same few that investors speculate.
It is a tiring game for the investors—the share prices of these companies have gotten too high, so those who have a fear of “heights” stop chasing the stocks and stop for a break.
When strong stocks take a momentary break, the market has to look for new concepts to speculate. Thus, companies like COSCO SHIPPING Holdings that had turnarounds became the new “concept stocks”.
(Editor’s note: A “concept stock” here refers to a company whose stock price is based on a new fad or trend and not on strict fundamentals such as income and assets. In this case, the new “trend” here is “turnaround companies”.)
In addition to turnarounds, another noteworthy concept is the “sale of assets”. There are many stocks in the market whose share prices are far lower than their net asset value per share. Thus, when there is a sale of assets, we know that the company would receive an amount of cash equivalent to the value of asset sold.
For instance, after Champion REIT (2778.HK) announced that it looks to sell Langham Place office tower on 4 July, its share price surged by 8 percent.
The 2 concept stocks can be speculated further
I believe that the two abovementioned concepts stand to see further speculation. At the beginning of last year, Galaxy Entertainment Group Ltd (027.HK) became a strong stock as a result of a turnaround, and its share price increased by more than 100 percent. The concept of turnaround can be speculated for not just a few days, but a sustained period.
Other examples include Standard Chartered PLC (2888.HK) and HSBC Holdings PLC (005.HK). The latter’s price-earnings (PE) ratio currently stands at 135x, which is incredibly high.
That also means that HSBC registered very poor performance and earnings in 2016. Its current rising trend is based on market optimism that 2017 would be a year of a great turnaround.
Speculations regarding the sale of assets only last as long as the news, which vanishes after the actual sales have taken place. Investors can consider arbitraging under profitable circumstances.
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