Regional markets surge on Obama’s stimulus plans
By Goh Eng Yeow
STOCK markets across Asia kicked off the year with a sharp rally yesterday, driven by hopes that the global economy will be on the mend later this year.
Investors across the region, bruised from the mauling they took in 2008, stepped back into the game to snap up battered shares.
The rises were striking, given the sour mood of late: Singapore managed more than 5 per cent while Thailand went north of 6 per cent.
It was largely fuelled by hope - something sorely lacking late last year - that the huge spending package and tax cuts proposed by the United States will finally revive that nation’s devastated economy.
‘Hopes are building up on the potential economic stimulus which will be taken by incoming US President (Barack) Obama and this is encouraging investors to rebuild their stock portfolios,’ said Mr Loh Hoon Sun, Phillip Securities’ managing director in Singapore.
But while traders are not expecting share prices to rise in a straight line, they hope the worst of the stock market carnage is behind them.
In Singapore, the benchmark Straits Times Index jumped 95.16 points or 5.2 per cent, to 1,924.87 - its highest close in almost three months. This brought its gains since Monday last week to a robust 144.3 points, or 8.1 per cent.
All in, the STI has climbed a dazzling 30 per cent after massive sell-offs triggered by fleeing hedge funds brought it to Oct 29’s intra-day low of 1,473.77. Some reason to cheer, for sure, but it is still halfway below the all-time high of 3,865.75 reached in October 2007.
STI’s advance was matched by equally dramatic surges on other battered bourses. Thailand’s SET Index jumped 6.4 per cent, Indonesia’s Jakarta Composite Index leapt 6.1 per cent and Malaysia’s Kuala Lumpur Composite Index gained 2.9 per cent.
Farther afield, Hong Kong’s Hang Seng Index was up 3.5 per cent while Japan’s Nikkei-225 added 2.1 per cent and China’s Shanghai Composite Index advanced 3.3 per cent.
Many traders said yesterday’s exuberance showed that the record falls last year meant markets had already priced in the hit corporate earnings will be taking from slowing business in the coming months. Any moves to stimulate demand though tax cuts or handouts would be a signal to traders of better days ahead - both here and elsewhere like the US.
So every economic stimulus move by President-elect Obama, such as his proposed US$300 billion (S$442 billion) of tax cuts, has been greeted with glee by traders. Such measures promise increased consumption, which should prevent the world slipping into a ‘liquidity’ trap.
This is where the fear of taking risk is so great that individuals simply hoard money while banks refuse to lend, even to prime customers, preferring to park their money in ultra-safe assets like US government bonds.
Across the region, investors made huge wagers yesterday that banks will reap enormous benefits as economies regain their footing.
Gainers here included DBS Group Holdings, which rose 73 cents to $9.42, and United Overseas Bank, up 42 cents to $13.80, while HSBC Holdings rose 50 HK cents to HK$77.50 in Hong Kong.
Even Israel’s assault on Gaza was viewed in a positive light, as traders recalled the huge rallies experienced by global stock markets after the first Gulf War in 1991 and the 2003 invasion of Iraq by US-led forces.
The resurgence in oil prices amid rising Middle East tensions has sent prices up of other commodities such as palm oil, energising plantation stocks and rig-builders in the process.
The sharp gains have raised hopes that regional markets are unlikely to test the dismal levels hit in late October.
But memories of previous rallies that ended in tears as stock prices resumed their downward spiral have served as painful reminders for traders to treat any upswing with caution.
‘It is hard to tell whether the run-up is merely a short-term rally. It is better to just buy good companies and take a long-term view,’ said Mr Peter Hames, Aberdeen Asia’s investment director.
Source : Business Times - 06 Jan 2009
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