Stubborn Lao Index tests investor patience

Stubborn Lao Index tests investor patience

The Lao Index was as stubborn as ever yesterday, requiring a lot of investor patience to handle current conditions. Those that take note of the price resistance and “go long” until prices appreciate, will be well rewarded. Inexperience again showed through in the first off market session (CA-1) yesterday, when 774 BCEL shares were traded at a giveaway price down 100 kip (1.25 pct) to 7,900 kip.

In the second session, 25 stocks minimised the BCEL closing share price, down only 50 kip to finish at 7,950 kip. EDL.Gen also participated in novice trading, with 20,000 shares crossing the floor, down 100 kip (1.96 pct) to 5,000 kip in the first close. Then another 23,000 shares traded in the final session to finish back at the previous day's close of 5,100 kip.

The unexciting day's trading fetched 218 million kip. Both stock prices should be going north not south - as we reported, nice work if you can pick up stocks at the current prices.

Wednesday's CA-1 session saw the index “artificially fall” again from its February 2 peak of 1864.98 to a new yearly low on diminishing volumes by 19.43 points to set a 10am opening price of 1047.71, its fourth lowest level since the exchange opened and a level last plummeted on January 13. By the close EDL and BCEL gained 100 kip and 50 kip respectively, but because BCEL was negative the index followed suit closing down 1.3 points at 1063.82

Local shareholders need not fret about today's share price for either BCEL or EDL.Gen as there are many good reasons the prices haven't risen and volumes have dried up, which are not linked to Euro bailouts or US debt and equities markets. No one person can change the market, but you can certainly select the stocks you hold and organise your own specific trading objectives or strategy. The Lao stocks are a great investment and today we continue our series as to why, in order to retain your interest as an active investor.

Should investors be worried? No! Quite the reverse. In the past few Vientiane Times stock reports we have provided readers with “legitimate analysis”, which firmly says the stocks are “oversold”, representing a seller's market, but the bears remain firmly asleep in hibernation. The buyers will have to elevate their bidding price if they want to acquire reasonable volumes. Volumes, we repeat, are your best guide to a stock's price. It's very simple at the moment: volumes have dropped off because of price resistance, which is quite different to a fall in company profits or earnings.

Institutional and strategic shareholders wouldn't even consider shorting the stocks (selling at today's price), because everyday moves the market closer to the awaited dividends expected around the end of Q4.

In better times with a stable US dollar a margin loan would be ideal in today's Lao market , but events in the past three years with the Global Financial Crisis, oil hitting US$120 a barrel and worries about US debt and Euro Zone bailouts suggest it's not a good time for a margin loan, together with the fact the international markets have been bearish since April.

There may be a case for talk that there is no current liquidity in the Index. But for individual stocks liquidity is not even on the radar. Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset's (stock) price. Liquidity is characterised by a high level of trading activity, which is lacking at the moment. Analysts who talk about liquidity of a stock use the term in the context that the specified stock can be easily bought or sold, giving the name “liquid assets”.

The current market situation can be dangerous for novice investors , who become a “stock clock-watcher “ of their stocks. In effect, clock-watchers end up with “day trader” traits; that is, an investor who is always looking at the clock, anticipating when something will be over. For the clock-watcher any movement up or down is excessively exaggerated – that then conjures up all sorts of scenarios which, if repeated, become impressionable on that person.

When you put your money on fixed deposit, it is usually case of the longer the investment, the better the “fixed interest” return. Following up from Saturday's and Tuesday's columns, when you invest in stocks there is no time limit imposed, but, similar to bank interest, a longer rather than shorter period of time exists in securities markets.

In securities there are risks, nothing is guaranteed, but with the right research and analysis “going long” historically will yield good returns. BCEL over six months is averaging a 60 pct return on its IPO price, while EDL.Gen is averaging an 18 pct return. Any financial advisor who can get that sort of return for you in today's economic climate of financial uncertainty would be considered a genius.

The three P's for investment performance are Patience, Perseverance and Persistence. At the moment, the local market is set up for investor patience, for perseverance while the price resistance remains, and then persistence with your strategy to “go long” and resist selling at a lower price. In the meantime should you have an opportunity to profit take or buy in and accumulate more stock, it should be considered.

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