Ann: Vmoto launches new Australian online sales platform, page-85

Richard Hemming’s three top tips for new year: oil, cars and scooters
RICHARD HEMMING, THE AUSTRALIAN, DECEMBER 5, 2015 12:00AM



It looks like the ASX All Ordinaries Index will finish up pretty much where it started in 2015. Having opened at 5388.6, it should close slightly below that. But as usual, there have been some big lessons about the future as it has gyrated some 20 per cent between its high in April and its low in September.

So what have we learnt?

Lesson 1: Cracks are appearing in the yield facade. Between March and September the major bank stocks fell on average 20 per cent, which compares poorly to their dividend yield of 6 per cent. Investors who bought them because of their “bond-like” qualities received a big shock. The underlying yield for corporate bonds has changed a lot less dramatically.

Lesson 2: Iron ore can stay lower for longer. West Australian mining magnate Gina Rinehart will soon be celebrating her first iron ore shipment to Asia from the newly completed Roy Hill mine. She paraphrased Winston Churchill in a recent statement, such was her joy. But she is simply one of many suppliers, with BHP and Rio and Brazilian super tankers carrying more iron ore than ever. Combine this with the overcapacity in steel and you can see why iron ore will probably remain at $US40 a tonne and only the very big will survive.

Lesson 3: Oil is down but certainly not out. Oil producers can move a lot faster on the supply side. The Saudis are pumping out the black stuff at record rates, but they can turn it off at a moment’s notice (and then turn it on again). There are higher costs for overcapacity, however. Where do you put the stuff? Prices are forecast to halve to $US20 a barrel, but you could easily see them at $US75. In contrast to struggling iron ore small caps, there could be some spec bets in this sector.

Lesson 4: Small caps have outperformed. We cover companies that aren’t even in the small caps index, but we’re finding some of our stocks are performing well. Bellamy’s, Capilano, Mobile Embrace, Bulletproof and Medical Developments are good examples.

Lesson 5: The hunt for growth is alive. Investors are looking for stocks that can grow earnings independently of a stagnant economy. Small caps, by definition, are the place where you are most likely to find companies that are busy creating their own future.
With this in mind, here are my top three for the Christmas season.

Sundance Energy (SEA)
It’s one of the best companies in a rising oil price environment, being a North American fracking specialist with a portfolio of strongly returning undrilled wells. It’s also cashflow-positive, although it has some debt.

Vmoto (VMT)
I’ve never seen one of its Chinese manufactured electric scooters, but they’re exactly what the world needs! The vision is to be China’s two-wheeled answer to Tesla. It’s a scooter at the premium end of the market and its sales are increasing impressively through a number of wholesale deals and its own stores.

iCarAsia (ICL)
The Asian version of Carsales.com has won the battle to be the dominant automotive digital marketplace in Malaysia, Thailand and Indonesia. The question is, when will 20 per cent shareholder Carsales.com make its move?