Singapore Market Set for CONTINUED RALLY

Dec 3, 2007

TAKING STOCK
S'pore market set for continued rally
Defensive shares, blue chips may rise in hopes of further cut in Fed rate

THE recent market euphoria fuelled by rising hopes of another United States interest rate cut this month could continue this week, further aiding the Singapore bourse's recovery.

As was the case last month, market players have been buying in anticipation of US Federal Reserve intervention to prevent the American economy from slipping into a recession. The improved sentiment gave the Straits Times Index (STI) an end-of-the-month bounce last week. It finished 195.38 points, or 5.87 per cent, higher at 3,521.27 for the week.

Market experts warn, however, that thin volumes are a lingering worry, an indicator that most investors are still adopting a cautious stance.

Average daily volume was 1.74 billion shares worth $2.26 billion, a slight dip from the 1.79 billion shares valued at $2.06 billion the previous week. There are several signals that point to a possible continuation of last week's upward momentum.

STAYING UPBEAT

Investors are buying in anticipation of Fed intervention to prevent a recession. Thin volumes are, however, still a cause for concern.Last week saw an upbeat mood returning to Wall Street, as a horrid November drew to a close. Wall Street finished higher after Friday's session, ending 59.99 points up at 13,371.72.

This puts the market in good stead for a year-end flourish, as December is traditionally one of the best months of the year.

Analysts tip Hong Kong's Hang Seng Index - the market that Singapore has been most closely mirroring of late - to test the 29,000-point mark, as it surged 7.92 per cent to 28,643.61 last week.

Back home, bank counters - a key driver of the STI - should keep up their recovery.

A recent Citigroup report saw 'Singapore and Hong Kong banks as beneficiaries of the Fed easing', and said local banks should 'benefit from falling local short-term rates by cutting funding costs and holding on to mortgage yields'.

Analysts also tip defensive stocks and blue chips to find increasing favour among local investors who are becoming more risk-averse due to higher volatility.

The main economic data this week will be Friday's report on American non-farm payroll job creation and unemployment.

Analysts say the information may frame discussions at the Fed meeting on Dec 11, and a rate cut could set the stage for a significant year-end rebound.

Will Asian equities see a Santa Claus rally this year?

Said Henderson Global Investors director of economics and asset allocation Tony Dolphin: 'I think they will. The markets are very oversold. They've recovered a little. I think they can go further.'