Why long-term investors don't bother with the market slump

July 29, 2015 17:16
MTR Corp., which is 15 percent below its 52-week high, will enjoy steady growth as more railway lines are built. Photo: Xinhua

Is the stock price fall a temporary dip or a structural decline?

The four sectors I’ve recommended earlier still have rosy growth prospects. Power stocks are set to benefit from lower coal prices. We’ve seen that the Australian dollar continues to touch a new low.

Power stocks have a price-earnings ratio of around eight times but offer dividends of nearly 5 percent.

Natural gas stocks have been trading sideways for more than a year. But their continued double-digit earnings growth indicates that they will pick up soon.

In the internet sector, leading players are poised to become winners as more people are switching to 4G networks, online shopping and mobile payments.

The NASDAQ index has surpassed its 2000 peak, so is there room for further upside? Investors may have underestimated the changes brought by Google, Facebook and Amazon.

Insurance and brokerage plays have retreated substantially from their peak level. However, these stocks are set to rise in line with the broad market.

Insurance demand will increase amid an aging population as well as efforts to internationalize the Chinese currency and further open up the equities market.

Sportswear stocks have survived the market downturn. ANTA Sports Products (02020.HK) has benefited the most, with its share price only 5 percent off a 52-week high.

China Vanke (02202.HK) and MTR Corp. (00066.HK) are both 15 percent below the 52-week high.

Vanke is likely stand out amid an industry consolidation, while MTR will enjoy steady growth as more railway lines are built in the coming years.

It’s very difficult to predict short-term volatility, but company value is far more visible as long as the business is understandable and management is trustworthy.

Investors should not be scared away by short-term fluctuations. Instead, they should take advantage of a market correction to accumulate good stocks.

Many investors buy stocks because of their attractive valuations, while others pursue stocks with fancy stories. They will pay the price sooner or later.

Investors should exercise more discipline in making investment decisions, regardless of how much money they have.

Stock trading is not much unlike consumers who accumulate huge amounts of snacks because a snack store has a big sale promotion that is too hard to resist.

However, most of these snacks are soon wasted and end up in the garbage bin.

We should always focus on good stocks with strong fundamental support.

Good stocks are not always cheap. Therefore, we should take advantage of market correction to buy such stocks.

Over the past two decades, the Hang Seng Index dropped below the 100-month average line of 21,800 points three times.

Currently, the benchmark is hovering at 24,500 points, around 12 percent above the line.

Nobody knows whether the market would fall below the line anytime soon. However, the closer the market moves towards that line, the more value we can get in the long term.

This article appeared in the Hong Kong Economic Journal on July 29.

Translation by Julie Zhu

[Chinese version中文版]

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Columnist at the Hong Kong Economic Journal