Monday, January 25, 2010

A market correction; bought Capitaland

Since opening at about 2,932 points on 20 June, the STI has corrected sharply to a low of 2,791 points at today's market open. The market has been impacted by worries of premature tightening activity in China, coupled with poor US market performance last Wednesday, Thursday and Friday, which wiped more than 500 points off the Dow Jones Industrial Average over the three days.
The US market has been hurt by Obama's statements on new regulatory moves to prevent banks from becoming too big to save in the future, as well as a proposed tax (for a decade at least) on the largest financial institutions to fund a potential US$100+ billion TARP shortfall.
Neither the tax nor the proposed restrictions on proprietary trading make much sense, considering that proprietary trading was hardly the reason why the financial crisis precipitated in 2007. A core portfolio holding, Wells Fargo, may be directly affected if new regulations dictate that the bank is too large in mortgage operations (considering that WFC swollowed Wachovia in late 2008, practically doubling its assets). However, given the lack of clarity at the moment, it is difficult to justify selling the stock based on uncertainty alone. As previously mentioned, WFC is easily worth $50 a share.
A market correction (current "threats" pose no obvious harm to the economic recovery) is a shame to waste, and one lot of Capitaland was picked up at $4.04 in early morning trade. Capitaland has a very strong management team, and its track record is almost impeccable. The many avenues for the developer to offload newly developed properties is also a huge (and rather unique) selling point. The recent acquisition of Orient Overseas Developments' Chinese property assets raises its China exposure to about 36%, making the company an excellent play on the Chinese market (without the usual corporate governance issues).

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