Hey, this is a new small segment I’ll do once a week, and it essentially highlights the assets where I think we can get information to draw wider conclusions from. Basically, where we can infer prices of other assets given what we know about one specific contract. To “skin the game” a little, I will keep track of a HK$1.000.000 fictional money account, to be invested in increments of HK$1.000, adjusted once weekly. The basic rules are:
- No leverage or derivatives: just pure stocks, indices, forex, commodities.
- Short positions may be taken on just like longs, accounting the trade value like cash into the account, except that an extra, flat surcharge of 1% of the entry transaction value applies to simulate the holding fee.
- The minimum increment of any trade is HK$1.000.
- Contracts taken on outside the SEHK will need to be reported in HK$, meaning that currency risk is included.
- Trading may only be done during the weekend. I can’t say my watchlist trades were modified during the week, since this is a slightly longer term endeavour to begin with.
- Limit orders are allowed, in terms of both entry and exits, but must be stated as such and placed at a fixed level (as opposed to an MA, or other fluctuating indicator).
- Results must be reported every weekend.
And that’s it! In writing, every post will have the following sections in the following order:
- Long Lane: Things I believe will go up, why, and wider implications for the market.
- Short Street: Things I believe will go down, why, and wider implications for the market.
- Glancing Gallery: Things I think are showing interesting signals that will not mature during the coming week but might be on LL or SS within about a month.
- Past Performance: Discussing the W2-related events of the last week in a quick, summative manner.
- Account Report: Overall Performance, bought/sold, transaction details, chart. (The two last sections will be a little bit bare this week, but bear with me.)
1: Gold Plays. I am particularly fond of Zhaojin Mining and have increased my exposure during the consolidation, but Zijin Mining also looks interesting from this point given its tremendous fall. Zhaojin has the relative performance with it and a lot less corporate leadership problems, and the massive volume on Friday was most importantly consistent throughout the day. If gold breaks the aforementtioned 50% fib, the next target would be the 1720 level I’ve written about before, and given how poorly both of these plays have trended gold, it would be quite some catch-up to take as well. Zhaojin is my number 1 long list candidate, getting HK$50.000 long, mostly because of the push towards its 21 SMA, breaking into the trend formed by the May and July bottoms, and tangled quarterly SMA’s, which generally weakens them as it is a signal that longer and short term market participants are at least in technical dissonance. This stems from any adjustments like breaking a shorter-termer means jumping a few others to get to the longer term, and that traders with even relatively similar timeframes will be looking at a larger range of levels. Thus, the 16-17 range should not be too difficult for the stock to clear given the volume and a potential gold run. The Chinese return after golden week is also likely to be rather strong (HSCEI went up the past week, but adjust for the added euro risk that flared this weekend with the banks and you could be down again come Monday, which should still be positive gold.)
1.1: Auxiliary Gold Play. This one is such a cheeky one it will probably make your jaw drop. Jiangxi Copper Company. But the fact is that the stock has been extremely depressed by late events, and also has over 20% of its profits tied to gold production, which only accounts for about 8% of turnover. P/E of 7 (!) because of their low profit margins and risks associated with these 25% price drops. However, last reported data is 2010, where the copper price remained rather low for a large part of the start, so that JCC should do fine if copper stays low for the rest of the year, but inventories are rising, so there is copper demand at these prices. On the stock itself, it has seen extreme intraday price moves in a single direction, so it will be really interesting. I’ll be playing this both ways (I’m more long than short, so that’s why it’s here, as a subplay of gold, and it’s for one week only) with a HK$30.000 long limit order at 15.05, and HK$20.000 short limit at 12.80.
2: Chinese Steel. I have been effectively having Angang Steel and Maanshan Iron on my Glancing Gallery for as long as they’ve plummeted for. It’s been interesting, and at one point it calls into question whether these companies will go into bankrupcy imminently. Avoiding such scenarios, the picture looks rather good since they should be able to offset their horrible 2010 Quick/Current ratios by reserves and should Peking decide to loosen their policies things could look up a bit, but their profit margins are not much to cheer for. From the technical point of view, they are both showing the roughly same pattern, with Angang outperforming slightly and actually having more volume on up days rather than down days for the last two weeks, which is highly bullish. Maanshan has a slightly lower trend performance (after adjusting volatility) this year no matter what the conditions, so I’ll leave that out and call long for Angang Steel, with HK$20.000. Angang is also closer to its 2008 bottom, but I’ll get in a limit stop at 3.50 on the price just to be certain. It’s now or bust, guys, and the volume is the best signal I’ve seen for 6 months. Only for a week, ‘mkay? This is also one area where a turning point could mark a wider rush-in for the Chinese market, so watch closely (if they survive) over the coming year.
3: Energy. Kunlun Energy runs farther, faster and more technically than either Petrochina or CNOOC. More safe players could look into China Shenhua given the more firm bottom, but it is a coal producer and should suffer some of the consequences of the steel producers. HK$30.000 long Kunlun Energy because of that beautiful bounce of the HK$9.8 bottom bounce one year ago, and limit stops at 9.7.
4: Macau Casinos. The background fundamentals are all there in the link, but the technical play deviates slightly. Sands is be most interesting because it has actually crossed its yearly day-SMA, and rallied further than the rest in relation to how far it fell. If it gives up the rally and gives below its year SMA again, then I’ll consider giving it up, but if it can sustain rallies here, it should enable Galaxy Entertainment to cross the same level, and see the others like SJM and Melco follow suit in pulling their valuations off the floor. The other benefit with sands is that it is sitting near its August bottom and June-August bottom trendline, meaning that if it breaks above or below then there could be good swings either way and thus being technically a lot more indicative of the general market sentiment picture than any of its competitors. HK$30.000 long Sands China.
1: Financials, across the board. Major Chinese banks are trading near their nominal bottoms of the 2008 debacle, and off far worse valuations. This is a bargain if you don’t believe the hammer will come crashing down on the chinese financial market, and that the worst-case scenario is that real havoc erupts in Europe, world commodities drop and inflation falls back to allow Beijing to actually ease policy a bit. It’s also a bargain if you believe the currency will rise as well. So, long, right? Sorry. We’re in rather deep for financials worldwide, so this will go on the glancing list. But why am I even mentioning them? They’re a rather good benchmark of what Hong Kong has to catch up (down?) with, and one of the best catchups available would be HKEx! It crossed the July ’09 and June ’10 bottom with no hesitation, and it sits in a rather sticky position. After the bounce it is running into stiff resistance I don’t think it will beat, and it has far to fall if the HSI would be pulled down whatsoever because of, say… Europe? Or is your money on the US budget debate and elections? Either way, negative shocks in either of those should send the HKEx strongly lower to catch up fully. Again, there’s stilll (current) value but the (immediate future) projections look scary, and as everyone knows HKEx is one of the most sensitive to either. 44% off the yearly top, and I’m going short HK$80.000, it feels empowering! 😉 I don’t think the HSI can clear the 17600 level significantly, there will be struggles at 18000, and then the 21 EMA/SMA will be tough as nails. Consolidation is not a positive for the HKEX, which would need a rally to climb given the volume dependence. We’ll round it off with another HK$20.000 with HSBC, just purely off that 21 SMA proximity and further euroworries. It is one of our best access points directly into european finance and each day will me momentous for Europe, why not use it?
2: Property. You could be forgiven for wondering just what I’m smoking but the technical picture is looking much similar to HKEx on a volatility-adjusted performance basis, especially for HK’s flagship, Cheung Kong. If the world faces a lot of export uncertainty or financial uncertainty those are big negatives for Hong Kong, since essentially the only people smart enough to shop on a discount are all employed at Standard Chartered. We could be looking at both, and Cheung Kong is a rather impressive bit of play on the same ideas as HKEx plus property worries. The big information advantage is however in Hang Lung Properties off the simple reason that it did not rally as much last week, and thus provides more information either way than Cheung Kong will. However, HK$20.000 short each.
Here, I’ll essentially put everything above that I didn’t fictionally bet on. A couple of short notes however:
1: Jiangxi Copper deserves a mention here off the copper play alone. Short-term possibly positive, medium term possibly abysmal, and long term hopefully rather good since growth is somewhat decoupled from the west which has the pricing power. One to watch out for, definitely!
2: MTR Corp. A bit of retail, a bit of property and a bit of utility all baked into one. Also, double bottom. You don’t get much better diversification plays in a single stock in Hong Kong, and I always check this one for indications on what it correlates most with. Interesting times but I think this can wait given the lower volatility.
Research! Not much more here, wait for next week!
Account Adjustment and Report:
- “Starting Balance”: HK$1.000.000
- Exited positions: None.
- Entered Positions:
- Zhaojin Mining, HK$50.000 (L, 5%)
- Angang Steel, HK$20.000 (L, 2%)
- Kunlun Energy, HK$30.000 (L, 3%)
- Sands China, HK$30.000 (L, 3%)
- HKEx, -HK$80.000 (S, 8%)
- HSBC, -HK$20.000 (S, 2%)
- Cheung Kong, -HK$20.000 (S, 2%)
- Hang Lung Properties, -HK$20.000 (S, 2%)
- Sum Long: 10%
- Sum Short: 14%
- New Account Cash Balance: HK$1.038.600
- Net position, 10/10-16/10: -4%, HK40.000