Saturday January 26, 2013
New method of investmentin the stock market
By TEE LIN SAY
MALAYSIA’S warrants specialist Alan Voon has come up with his first book, Trading The China Market with American Depository Receipts. A coup indeed, as the book is also published under the Wiley Trading Series which typically features only authors who are heavyweight hedge fund managers.
While Voon’s expertise lies in warrants, he is now writing on a new instrument – American Depository Receipts (ADRs), an instrument which he says will enable us to make some “free lunch” money in the stock market which is not entirely efficient.
Voon says that while his finance professor used to tell him that there was no free lunch in the stock market, and this is somewhat true considering today’s well-connected global market place, to some extent, there are some risk-free opportunities in the market.
ADRs are securities that are issued by foreign-based companies and traded in the US market. Investors who are active during US market hours can actually capture quick profits through a relatively risk-free trading strategy utilising price-moving, after-market news from Asia to build positions in ADRs or their derivatives in the US market.
Throughout the book, there are more than 10 case studies on how Voon has made use of after-hours market announcements in Asia, and utilised that information to trade the company’s ADR in the United States. Thus, Voon makes money before the ADR prices are reflected in the earnings news.
Voon explains that there are many Chinese or Hong Kong companies which typically make company announcements after hours, and as late as 10pm Hong Kong time.
“By this time, the Hong Kong media has closed their papers. Markets will only be opened in Hong Kong tomorrow morning. But the US market is open. So with this information, you can basically trade the US market now, using what will be tomorrow’s headline news in Asia,” explains Voon.
Chapter two is extensively on ADRs, the different types of ADRs, and the mechanisms of creating and cancelling ADRs. Voon goes on to introduce 10 companies that should be kept on one’s watch list to take advantage of possible price-moving news.
In the case studies offered, Voon shows how an investor can benefit, not just through an earnings surprise, but also when companies deliver disappointing earnings or when governments announce policy changes.
Voon uses the real life example of Genting Bhd, Guangshen Railway Company Ltd and Yangzhou Coal Mining Company and China Unicom (HK) Ltd among many others.
Case studies aside, Voon offers some advice to investors.
“In investing, you must control your emotions. Investment psychology is important. How many times have we seen people chasing stocks only after they have gone up,” he says.
Unlike other fund managers, Voon does not think that being short term is bad thing.
“It is the short term which determines the long term. Sometimes, the event in the short term will lead to a change to the long term’s outlook. Therefore people can be short term, but play within your means. To contra is just wrong,” he says.
By the end of the book, readers will know more about ADR. Secondly, they will understand international investing and how to go about it. Voon explains this in some detail. He also shows some of the tools available to assist readers in the investment process.
“This book is basically meant for the retail investor who wants to do some international investing,” says Voon.
The book is priced at RM216 and is available in MPH, Kinokuniya and selected bookstores.