There are a lot of external uncertainties in the A-share market despite its bullish trend: the likelihood of a Greek debt default, geopolitical risks in the Middle East and the looming interest rate hike in the United States.
Investors are well-advised to hammer out a strategy that is suitable to their own style and personality.
First, they should place a cap on their investment in equities. I said earlier that investors should reduce their holdings to around 80 percent and take some profit in light of the recent market consolidation.
But now I think they should further reduce their holdings to around 50 percent in May as the market has yet to show a clear direction.
How to deploy capital? Half should be invested in stocks of long-term value and those supported by national policy, such as banking, insurance, high-speed railway, infrastructure, “Internet Plus”, new energy and free trade zone stocks.
Investors should invest around 30 percent in stocks that they are familiar with in terms of business, balance sheet and earnings outlook.
For May, they should also focus on stocks that have high volatility. Investors should take advantage of bad news to accumulate good stocks and take profit when the stock price hits a technical resistance level. A flexible approach will give investors maximum returns during the market ups and downs.
Then they should invest the remaining 10 to 20 percent of their capital in highly speculative stocks. Those who favor short-term speculation could ramp up the ratio, or they could increase their investment in stocks with long-term value.
Internet Plus stocks are likely to be much sought after in the short term. These cover all business sectors, from finance, pharmaceutical and retail logistics to tourism, education and software.
Also, big plays like Alibaba and Tencent (00700.HK) are set to lure massive hot money. The internet sector in Hong Kong used to be driven by US and European companies, but things have changed.
Local investors are very likely to follow the trend. GOME Electrical Appliances Holding (00493.HK) saw its stock price soar 17.34 percent on May 11, after UBS upgraded its rating, and mainland reports said the company chief may be released in the second half of this year.
Intime Retail Group (01833.HK) jumped 21 percent, while Kingsoft Corp. (03888.HK) and Netdragon Websoft Inc. (00777.HK) benefit from their ambitious strategies.
Speculation in this sector, which will become the main theme for China’s new economy, is set to surge with the participation of a large number of mainland retail investors.
Conservative investors, on the other hand, should focus on accumulating mainland banks and property plays during each correction.
On Sunday the Chinese central bank announced an interest rate cut, which would help mainland banks to expand credit and offset bad-loan risk. Meanwhile, the One Belt, One Road strategy will also bring massive business opportunities to Asian banks.
Mainland property and other debt-laden stocks are also attractive as Beijing is set to adopt further monetary easing and tax cuts.
This article was published in the Hong Kong Economic Journal on May 12
Translation by Julie Zhu
[Chinese version 中文版]
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