Buy on fear?

Even as the Asian stock markets have jumped 68% in 2009, for the next 12 months, the danger of a major hiccup is very slim, says Andrew Beal (Henderson Horizon Fund). "It would be very odd for a bubble to occur just 12 months after one of the steepest recessions in living memory." (I concur with this view) Going forward however, over-heating in Asia in the form of unsustainable rises in property, stock and commodity markets could be a risk, he warned.



Nonetheless, the market has run up substantially, and I must be very selective in my sector and stock selection in 2010(Actually, this suits me better since there is now only a limited number of stocks i need to look at).



What are the sectors? Technology (due to companies poised to start spending on technology again) , energy and materials, that's it. AVOID property (due to policy risks), transport(escalating oil prices) and telecoms.



What are the stocks? I immediately have two in mind since they have dipped due to profit-taking during the past few days: SembMarine and Straits-Asia.

The fundamentals on Straits Asia:

Merril Lynch: Straits Asia Resources (SAR) is our key pick in 2010, driven by (1) upgrade of
resources number; (2) conversion from resources to reserves; (3) granting of the
forestry permit; (4) re-building of the second jetty that failed in 2009 and (5) solid
delivery on operational data. SAR is one of the cheapest coal plays in the region.
On our estimates, SAR is currently the cheapest among coal plays – the stock is
available at discounts of 19% (2010E) and 39% (2011E) to Indo coal peers. The
current share price implies a coal price of US$69/t. Our price objective is S$2.8, which offers a potential upside
of 27%

Macquarie: Sales volume to increase from 9.5 m to 12 m in 2010. The CEO recently suggested that the company is looking to increase production up to 35 m to 40 m tonnes by 2017. We have increased our net profit estimate for 2010 to 2012 by 56%, 45% and 65%. Price target raised from $3.00 to $3.50.

The technicals:

Major Trend: Up

Secondary Trend: Up

Candlestick: Bearish Engulfing, with red SAR indicating short-term weakness.

Support area: Around 2.30 which is Fib 50% retracement from 1.81 to 2.74, which also coincides with the near-term support line.

Strategy: Wait for price to bounce up from this support region.

SembMarine:

Major Trend: Up

Secondary Trend: Up

Candlestick: Hanging man, indicating near term weakness.

Support Area: Around 2.56, recent low.

Strategy: Wait for price to turn up from support

Of the two, my preference is SAR as I want to gain exposure to the commodities sector. Will I be overtrading? My current trading portfolio is as such:

F&N +0.47 (will be liquidating soon)

Creative -0.18 (will be liquidating soon)

Swiber +0.06

Therefore, capital freed up from F & N and Creative can be used for buying SAR.