By Alvin Foo, Markets Correspondent

The smiles are being restored to the faces of local stock market investors after many months of gloom and doom.

A sea of green has returned to battered bourses and there is a growing belief among analysts, dealers and investors that the worst of the market carnage is over.

'Dawn has broken and the sun is slowly coming out,' said Mr Gabriel Yap, senior dealing director at DMG & Partners Securities. 'This is turning out to be a powerful V-shaped rally.'

The local benchmark indicator Straits Times Index (STI) has surged more than 50 per cent to 2,238.21 points since falling to a near six- year low of 1,456.95 on March 9.

It is now near a seven-month high, back to its level last October before the record global market massacre that month.

The STI's comeback has been described by experts as 'unbelievable', 'frantic' and 'powerful', mirroring the robust recovery seen in other key Asian bourses.

The rally was sparked by signs that the global economy was picking up. Earlier last week, a private survey showed that China's manufacturing sector last month posted its strongest performance in nine months. There were also indications that the worst was over for the badly pummelled United States financial system.

Market volumes in Singapore have revived as fund managers and retail investors joined in the buying spree. Last Friday, 5.18 billion shares worth $3.02 billion were traded, a level last seen in July 2007.

Mr Najeeb Jarhom, AmFraser Securities' senior vice- president of research, said: 'A bottom for 2009 should finally be in place at 1,456.'

Yet, this month is historically known for being the time when investors adopt a 'sell in May and stay away' strategy. This old belief, some say superstition, is that investors sell this month, perhaps due to the looming summer holiday, and stay in cash or bonds before buying stocks later in the year.

But liquidity-driven buying from fund managers turned this old adage on its head earlier last week. Mr Najeeb noted: 'Blue chips on the strength of their balance sheets alone mean the STI does not deserve to remain at the 1,500 level or even below 2,000.' He added that the 'unbelievable rebound' shows that Singapore's 'underlying corporate fundamentals are still sound' despite being battered by the recession.

The charge has mostly been led by blue chips, especially banking stocks, property counters and oil palm plays. With blue chips having soared substantially, the attention could now be turned to stocks with higher risk such as penny counters and S-chips. But the experts urge investors who have missed the boat not to dive in just yet.

Although another major crash is highly improbable, they warn that a short-term correction of 5 per cent to 10 per cent seems likely in the light of the current supercharge.

This could bring the STI back to 1,800. 'Don't jump in now if you've missed out,' said DMG's Mr Yap. 'Eye the right stocks first so you may enter when a pullback comes.'

Mr Najeeb said that fund managers are likely to take profit, especially if the STI runs up to the 2,400 to 2,500 mark in the next fortnight.

Historical data suggests that investors who have missed out on this rally will have other chances to catch the wave. After all, the STI tripled in about 16 months from its bottom in 1998 after the Asian financial crisis.

CIMB-GK research head Kenneth Ng said: 'A pullback must certainly come after the strong run recently. Any pullbacks will be muted in this environment as almost every investor is ready to buy on dips now.'

As UBS noted in a report, the STI's rally is 'far from over'. 'We believe cash levels remain too high and the rally is backed by improvement in fundamentals.'

This article was first published in The Straits Times.