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By Goh Eng Yeow, Senior Correspondent
TRADERS are expecting the stock market to start the Year of the Golden Tiger with a roar but the ride looks like it will still be a bumpy one.
Look at the twists and turns ahead: European debt crisis, China's lending curbs to cool its overheated economy, United States moves to reduce the stimulus spending.
It all spells volatility. Over the past five weeks, the most widely watched gauge for market turbulence - Wall Street's Vix Index - has jumped by almost half to 26 after hitting a 20-month low of 17.58 on Jan 19.
Still, stock pundits hope the storm clouds that have turned markets topsy-turvy recently will clear up and enable investors to enjoy a positive start when trading for the Tiger Year kicks off tomorrow.
'There were talks of some funds nibbling at shares as the market corrected last week. I am hopeful that the market will rebound from here,' said UOB Kay Hian remisier Charlie Lim.
Analysts are optimistic that there is further room for the benchmark Straits Times Index (STI) to rebound.
'So far, the STI's bounce is less than a third of the 281 point, or 9.5 per cent drop, from Jan 11's high of 2,947. A 50 per cent recovery means that STI can reach 2,806, or above the 2,800 resistance level,' said AmFraser Securities strategist Najeeb Jarhom.
What is especially reassuring to investors is US Federal Reserve chairman Ben Bernanke's assurance last week that interest rates would not be raised from their next-to-zero rate until the troubled American economy improved.
This is likely to remove any jitters over the burgeoning US carry trade where hedge funds borrow billions of US dollars at almost no cost to make huge bets in assets like regional equities and commodities.
Another sign that talk of a slowdown in China's growth might have been overdone came from Australia last week. Better than expected half-year results from mining giant BHP Billiton suggested that China's thirst for commodities remains robust.
Experts are also confident that the risks of Asian equities markets suffering a huge collateral fallout from Europe's sovereign debt crisis might have been overplayed.
Citigroup regional chief economist Johanna Chua believes that any impact will largely be confined to a possible sell-off of riskier shares as investor appetite for risks sours. 'Any sell-off should be disproportionately less in Asian assets than elsewhere,' she said.
What is heartening is that European banks with huge exposures to Greece and Portugal have small operations in Asia.
This should minimise any risks to the region from the 'common lender' effect.
And even if the economies of affected European nations nosedive as a result of the debt crisis, Asian countries' exposure in trade will be limited.
'Exports to fiscally challenged Greece, Spain, Ireland and Portugal form between 0.4 per cent and 2 per cent of Asia's total exports and an even smaller fraction of gross domestic product (between 0.1 per cent and 1.3 per cent),' noted Ms Chua.
Many Asian nations have foreign reserves at historically high levels so they are well-positioned to withstand any turmoil if the debt crisis triggers large flows of 'hot' money around capital markets.
Local traders are looking to next Monday's Budget to give the market a much-needed shot in the arm.
'The Budget is likely to be more positive for Singaporeans, smaller companies and lower-income households,' said Citigroup's head of Singapore research, Dr Chua Hak Bin.
Infrastructure spending will likely be stepped up and the possibility of a general election may mean special transfers for lower- and middle-income households, he added.
This article was first published in The Straits Times.
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