Is It Time For Bargain-Hunting In Singapore With The Collapse Of The Chinese Stock Market?

If you haven’t heard, the stock market in China has been in free-falling mode over the past month. Since peaking over 5,100 points in the middle of June, the Shanghai Composite Index has plunged by a third. Meanwhile, the Hang Seng Index in Hong Kong has sunk by around 15% or so over the same period.

Ironically, it appears that the massive decline in China’s stock market had started the very next day after the country’s top securities regulator, Xiao Gang, had briefed the country’s political leaders that the stock market still had room for growth.

But in any case, the market decline in China, together with the current crisis involving Greece’s debts and the Eurozone, has heaped pressure on many Asian stock markets over the past month.

Stocks in Singapore have not been spared and that’s especially so for companies that are dual-listed in both Singapore and Hong Kong. For instance, two such companies,  Tianjin Zhongxin Pharmaceutical Group Corporation Ltd (SGX: T14) and Shangri-La Asia Ltd (SGX: S07), have fallen by 48% and 11.5% respectively since 9 June.

Meanwhile, companies with businesses that are based predominantly in China have also suffered painful double-digit drops over the same period. Some examples include China Everbright Water Ltd (SGX: U9E), Yanlord Land Group Limited (SGX: Z25), and SIIC Environment Holdings Ltd (SGX: 5GB). You can see how their shares have done in the table below:

Share Price change:
9 June 2015 – 9 July 2015
China Everbright Water -17%
Yanlord Land -10%
SIIC Environment -23%

Source: S&P Capital IQ

The stock market crash in China is serious and may have contributed to the declines of the trio as a result of contagion. But, the collapse in the prices of Chinese-listed stocks was mainly due to excessive speculation happening in the stock market there. It’s, as of now, not directly linked to any major ills in the economy or business environment within China.

In fact, besides Yanlord Land, the other two shares in the table had actually experienced some growth in their profits over the past three years. But unfortunately for SIIC Environment Holdings, much of the increase in its bottom-line could not be translated to an improvement in its earnings per share due to an increase in the number of issued shares.

Foolish Summary

Even though the sharp decline experienced by companies like Tianjin Zhongxin, Shangri-La Asia, China Everbright Water, Yanlord Land, and SIIC Environment might have some links to the Chinese stock market collapse, it’s worth noting that the most important consideration here will still be the future heath of their businesses.

If their businesses can perform well, then it’s likely that their share prices will recover in time.

During times of panic, there will always be shares that are being indiscriminately sold regardless of how strong their businesses are. If you are able to find such shares (shares with strong businesses but depressed share prices as a result of blind-selling), you might have just found yourself a real bargain.

If you like what you've seen and want more analyses, insights, and important updates about Singapore's stock market, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.