Nov 10, 2014

    Sluggish S'pore market may catch investors' eye

    HOPES abound of a Santa rally to perk up what has so far been a lacklustre trading year for the local stock market.

    With fewer than eight weeks before the year draws to a close, the benchmark Straits Times Index is up only 3.76 per cent. Despite its meagre gain, it has outperformed Hong Kong's Hang Seng, which has inched up 1.05 per cent, and Tokyo's Nikkei-225 Index, which has risen 3.62 per cent.

    In contrast, for all the hand- wringing about slowing growth in China's mighty manufacturing sector and the explosion of non- performing loans in its banking sector, the Shanghai stock market has risen 14.28 per cent.

    The smaller Shenzhen market, which houses smaller firms from the mainland's private sector, has performed even better, shooting up 28 per cent for the year.

    Even Thailand has been a strong outperformer, with the Bangkok bourse gaining an eye- popping 21.36 per cent. This was despite the slew of bad news on the political front, such as the ousting of prime minister Yingluck Shinawatra in May and a military coup later that month.

    After suffering a big correction which wiped out its gains for the year last month, Wall Street has come roaring back. For the year, the Dow Jones Industrial Average has climbed 5.9 per cent, while the S&P 500 is up 12.63 per cent, as both indexes broke into record-high territory.

    This leads some market pundits to believe that interest will rotate to bourses such as Singapore's, which have so far underperformed Wall Street, given the host of factors that are likely to keep market conditions benign for now.

    One sweet spot is the United States' jobs data for last month, released on Friday, which showed a gain of 214,000 non-farm payrolls and a decline in unemployment rate to 5.8 per cent.

    Despite the increase in job creation, there was no pickup in wages, and this led to optimism that the US central bank would stay its hand in raising interest rates because of the low levels of inflation.

    Another catalyst which could jolt regional markets into a trot is the weakening yen, after the Bank of Japan (BOJ) sprang a surprise by announcing a supercharged quantitative-easing (QE) programme, coupled with a share-buying scheme, soon after the Fed concluded its own vast QE effort.

    In embarking on QE, the BOJ expands the money supply by purchasing the debts issued by its own government. This is to inject money into the banks in the hope that they will use the funds to lend to companies and individuals, and fuel economic growth.

    But big-time traders also take advantage of QE to play the "carry trade" by borrowing heavily in yen to fund their bets in higher-yielding assets.

    Yet another factor in the market's favour is falling oil prices, which will give major central banks a longer opportunity to keep interest rates low and take additional action to stimulate slow-growing or weak economies.

    Saudi Arabia had been expected to cut production to put a floor on oil prices. But it kept pumping against the backdrop of rising US oil production and resumption of some supplies from Libya, causing oil prices to collapse to about US$80 a barrel.

    Falling oil prices may cast a pall over the marine counters which had captivated traders and entertained high hopes of the profits that these companies could make from rig-building and offshore oil-exploration activities.

    An analysis of Wall Street's recent performance also shows that the market rebound had been led by defensive sectors such as health care, utilities and consumer staples. So, despite the slew of positive factors keeping sentiment sweet, investors are still wary of being caught in a sudden market upheaval.

    There may be a Santa rally as Christmas approaches, but investors will be treading cautiously.