We see the bear market rally that started in 4Q08 extending into 1Q 09. Our 1Q strategy focuses on companies with strong balance sheets that give them the ability to ride out the recession.
Markets managed to find a short-term low in 4Q08 as investors bet that 1) the frozen credit markets may start to thaw following recent aggressive measures by central banks to inject liquidity, 2) valuation has fallen to previous crisis troughs, the recent stock market correction has priced in weak FY08 earnings and poor economic data and 3) global efforts to pump prime economies could shorten the global recession.
Still, we remain mindful of the current credit crunch on small and medium size companies. With earnings downgrades still an on-going process, our stock selection adds focus on companies with strong balance sheets that should enable them to weather and emerge from the current crisis as stronger entities.
We take a positive view of recent plans to review capital expenditure by Ezra as well as its improved charter rates that are backed by long-term contracts. We also like ASL Marine's good earnings visibility and net cash position in FY09.
Among S-chips, we view the Chinese government's initiatives to shift its weight from exports to domestic consumption as positive for China Hongxing, which is backed by 17Scts net cash per share. We also pick water treatment company, Epure for its more defensive business model and good net cash position.
Our final pick is Raffles Medical in light of the defensive nature of the healthcare sector, the company's strong operating cashflow and net cash position.
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