What Bullish A-Shares Might Look Like

Main reference: Story in Sinafinance

RECENT A-share volatility may leave some investors scratching their heads in befuddlement as to which counters or themes are good bets as the year 2013 winds to a close.

But that doesn’t mean it’s not possible to foresee which stocks might surprise on the upside in the current quarter.

China is hoping to promote a handful of domestic drug
companies as industry powerhouses.     Photo: tupianThat being said, there’s not a lot to be sanguine about on the share front.

Therefore, those using the dartboard strategy of randomly picking stocks are likely to finish on the losing side.

That’s because there’s little to suggest the benchmark Shanghai Composite Index – the chief tracker of A- and B-shares listed in Shanghai and Shenzhen – will finish the year with a stupendous flourish.

So those retail investors with cool heads will ultimately prevail, if the fourth quarter is used as a temporal gauge of performance.

Sometimes intuition trumps the advice of seasoned analysts and we often finish ahead if going by our gut.

But then again, our gut is not nearly enough and we need a few vitamin supplements to keep us sated, and that is the perfect union – intuition and introspection.

Recently, we investors have all been yearning for a sustained uptick, but nothing seems to last beyond a few sessions.

Therefore, unfortunately too many of us have been buying on price alone, looking to get in on the latest ground floor and hoping to ride the elevator higher.

So it’s time to leave both overly sentimental and uber-analyzed stocks on the curb for now and get a bit technical.

Put all your preconceptions and prejudices aside and look closely at just one indicator – recent share price performance.

There are a handful or more of counters that have been hovering within a narrow range of late.

It is always advisable to opt for stocks that have not fallen below their 30-day moving average as opposed to jumping aboard those that have exceeded said average.

It all comes back to the recent ground floor entrance strategy.

Also, there have been many pronouncements and actions from the Beijing leadership on what sectors are going to be given subsidies in the near future – Christmas gifts if you will.

Recent China shares performance.      Source: Yahoo Finance

Recent support in the form of government handouts for both the solar and pharmaceutical sectors come to mind.

And investors would do well to pick and choose among these industries counters that are well-placed market share wise, and also show a healthy moving average performance.

Also, let’s not forget the basics – the main purpose of a company is to make money for itself.

Shareholder profits are a bonus, and almost always only arrive in the wake of a good quarterly/interim/annual performance.

Therefore, don’t neglect to keep an eye out for upside surprises in third quarter results as well as always remaining vigilant for credible positive forecasts on full-year earnings.

There are other things to watch out for.

Beware stocks that overreact to upside profit alerts.

By the time such information enters the public domain, it’s more than likely that the share price has already absorbed early optimism.

And if a particular counter’s share price surges shortly before its results are due out, then you need to get yourself some new advisors because you’ve more than likely missed the boat on the stock in question.

Finally for a real glimpse into fourth quarter outperformers, keep an eye and ear out for listcos that promise to significantly boost year-on-year and quarter-on-quarter bottom lines.

Don’t settle for anything less than a 30% increase.

“Stable earnings” just won’t cut it.

And be very careful of SMEs reporting massive quarterly earnings spikes.

It’s most likely a one-time event and inevitably from a dismally low base, i.e. not to be repeated anytime soon.

See also:

When To Give China Bourse A Wide Berth