Posted by Gilmour Poincaree on November 10, 2008

Monday, November 10, 2008

Many Hong Kong investors are asking whether it’s time to get back into the stock market.

Dr Check agrees that many shares are cheap now, even cheaper than during the SARS epidemic in 2003.

Also there is around HK$6.03 trillion in deposits in the Hong Kong banking system.

But if the US and European economies slow down, falling corporate earnings will lift the expected price AP photoearnings ratio. Stock valuations will become expensive again. So far, we cannot see any decoupling in the Hong Kong and mainland markets, but the percentage drops in these bourses have been greater than on Wall Street.

So, Dr Check’s advice is to wait until two final signs emerge – when the market is so bearish nobody wants to talk about buying stocks and when even bad news cannot push a stock price down any further.

If you go bargain hunting, stick to relatively safe shares for the short term and aim for a profit of 20 percent.

One such stock is China Molybdenum (3993), the country’s second- biggest producer of the metal used in steelmaking. In August, the management forecast a global shortage of 2,000 tonnes this year and probably next year as production declines. This will keep prices from falling.

UBS cut its target price for China Molybdenum to HK$4.40 from HK$6.20, to reflect a lower price forecast and higher risk-free rate, but retained its “buy” call. UBS also lowered its earnings per share estimate for the firm by 39 percent for 2009 and 12 percent for 2010.

CLSA expects earnings to fall to 1.72 billion yuan (HK$1.95 billion) and 1.43 billion yuan in 2009 and 2010, respectively.

China Molybdenum was listed in Hong Kong in April last year at HK$6.80 per share. It rose to an all- time high of HK$21.40 after six months before diving to HK$1.46 recently. It closed at HK$2.76 on Friday.

The company raised HK$7.1 billion from its IPO. Recent figures show that it still has HK$5.9 billion cash or HK$1.29 per share. If the share falls below HK$2 again, it’s really worth a pick.

Dr Check and/or The Standard bear no responsibility for any investment decision made based on the views expressed in this column.




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