MENU

Year of the Horse – Industries to Love?

The Chinese New Year is just two days away and for the Chinese that would mean plenty of visiting, goodies, and red packets. For others, it would mean a nice long weekend to rest, travel, or just to catch up on whatever it is they might fancy.

For those who keep a close watch on the financial markets, Feng Shui predictions about what’s hot and what’s not might also be of interest. According to experts of the ancient art, the “Earth” and “Fire” industries would have a good year ahead and these are industries that are specifically related to food & beverage, real estate, agriculture, and construction, among others.

So, from the looks of it, companies like Breadtalk Group  (SGX: 5DA) and CapitaLand (SGX: C31), with their business interests in F&B outlets and real estate respectively, could be in for a good year ahead. Others like Golden Agri-Resources (SGX: E5H) and Indofood Agri Resources (SGX: 5JS) – the former’s a oil palm producer while the latter’s involved with various plantation crops like rubber, sugar cane, and palm oil – might also make for nice bets over the next 12 months.

But, let’s not be hasty here.

Even if those Feng Shui forecasts turn out to be right in a broad sense, individual companies can often end up in very different states. Just take the chart below which shows the share price performance of Golden Agri and Indofood over the last 12 months.

indofood and golden agri price chart

Source: Yahoo Finance

Both companies are broadly classified as ‘agricultural’ companies but an investor in Golden Agri would be a much happier person as compared to Indofood over the last 12 months judging from their price changes. Golden Agri has disappointingly dropped close to 20% but the latter has been worse, losing some 40%.

If we look at their corporate performance shown below, the reason for the share price discrepancy becomes more obvious: with a much larger drop in profits, Indofood Agri’s share price became the one to suffer more.

Company

Profits: 30 Jan 2013

Profits: 29 Jan 2014

% Cahnge

Indofood Agri

IDR 1049b

IDR 456b

-56%

Golden Agri

US$410m

US$241m

-41%

Source: S&P Capital IQ

All told, the point I’m trying to make here is that each company’s different and their share prices would ultimately be tethered to their corporate performance. And even if there’s a rising tide that lifts all boats, the tide can’t do much if the boat’s a chronically leaking one – ultimately, the fundamentals of a business is what counts.

Feng Shui predictions might be interesting to note and could even be helpful (who knows?). But at the same time, as investors, we shouldn’t miss the forest for the trees. Great long-term returns do not come from trying to pick good performers over the course of a year; it comes from patiently holding great businesses that go on to grow for the years and decades to come.

Click here now for your FREE subscription to Take Stock Singapore, The Motley Fool's free investing newsletter. Written by David Kuo, Take Stock Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.  

The Motley Fool's purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn’t own shares in any companies mentioned.