Published April 3, 2009

STI skyrockets 6% on recovery hopes

US data, G-20 optimism help fuel powerful Asian rally

By R SIVANITHY

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(SINGAPORE) An improvement in US economic numbers ignited hopes yesterday that a recovery could be taking shape and sent the Straits Times Index up 101.08 points, or 5.9 per cent, to a three-month high of 1,803.34.

The rise was in tandem with gains elsewhere, led in the region by a 7 per cent jump in Hong Kong's Hang Seng Index and a 100-point rise in June futures on the Dow Jones Industrial Average.

Turnover here, excluding foreign currency issues, which dropped to a low $755 million on Wednesday, rose to 1.8 billion units worth $1.7 billion yesterday.

The last time the index closed at this level was Jan 9, when it ended at 1,806.02. In the three weeks since touching 1,456.95 on March 9, the index has gained 346.39 points, or 24 per cent, on hopes of a US-led economic recovery.

'Bear market rallies can be very powerful and can sometimes last a few months,' said a dealer, suggesting further upside is still possible. But most also admit that unless economic figures show clear signs of improvement, the upcoming earnings reporting season could slam the brakes on the market's rise.

Yesterday's push was fuelled by hopes that the US economy was improving, following improved residential construction figures and a manufacturing report that was bad, but not as bad as expected. Also helping were comments by officials that there are signs that coordinated international action to spur the global economy is gaining some traction.

'There's speculation that something good will come out of the G-20 meeting, so the buying is also in anticipation of this,' said a dealer. Leaders from the 20 nations started their meeting in London yesterday.

Assessing local news of a 13.8 per cent drop in private property prices in the first quarter, DMG & Partners said that although there will be more prospective buyers, most will only window-shop until prices become considerably more attractive.

'HDB prices should fall further on the back of economic weakness, job insecurity and filtering of interest into the mass market condominiums, which should result in an increase in bargaining power of buyers,' DMG said.

'While we are cognisant of units disposed at distressed prices in the secondary market, these remain selective ones. For the remaining year, we should see an increased quantum of such transactions, especially from the 10,000 units that will receive TOP (temporary occupation permits) in 2009. As such, we are keeping our neutral call for the property sector.'

In his latest market commentary dated April 1, fund manager Marc Faber said that the current bounce is because stock markets were heavily oversold and are experiencing a powerful bear market rally. 'While I do not expect any full-market recovery within the next few years (after that, we shall need to see how much money will be printed) I would not be surprised to see some further headway until summer 2009,' Dr Faber said.

'Very near-term, the stock market has become overbought and should correct. But for the immediate positive stance to be maintained, it is important that the November 2008 low of 741 for the S&P 500 not be violated on the downside.'

The S&P 500 closed at 811.08 on Wednesday.

Dr Faber also pointed out that although US residential construction appears to have stabilised, non-residential construction has only just started to contract, so talk of a recovery is premature.