Cheap money continues to boost share prices

US Federal Reserve boss Ben Bernanke wanted people to invest more, hire more staff and spend more when he launched a fresh round of quantitative easing - the controversial modern equivalent of printing money - last September.

While the jury is still out as to whether he has succeeded in the second and third of his objectives, he has certainly enjoyed runaway success with his first, as the Fed floods the financial system with US$85 billion (S$105 billion) using its bond-buying programme.

The latest fund-flow information furnished by data provider EPFR showed that investors had poured an eye-popping US$10 billion into equities funds last week, as QE3 runs into its eighth month. In Asia, foreigners made a net purchase of US$2.4 billion in funds investing in regional stocks.

Citi Investment Research strategist Markus Rosgen said: "The major improvement came from India which had a US$1.1 billion net purchase. Taiwan also had a net foreign purchase of US$1.3 billion."

On Wall Street, the deluge of liquidity has propelled the widely watched Dow Jones Industrial Index and S&P 500 to close at fresh record high levels last Friday, as US stocks continued their uninterrupted run-up for a third straight week.

In Asia, the Tokyo stock market is enjoying its best run in decades, as the Bank of Japan's printing presses go into overdrive as well.

The Nikkei-225 Index rose 3 per cent to a five-year high last Friday, as the US dollar rose above 100 yen for the first time in four years.

Regional equities markets are on the roll as well. As cheap Japanese money floods Asia, the suspicion is that the yen carry trades are reviving in a big way, as big-time traders and hedge fund managers take huge bets on Asian equities by taking out huge yen loans.

Even Singapore has joined the party.

The benchmark Straits Times Index decisively crossed the 3,400 level last week, as banks and telcos led the charge higher. For the week, STI ended 2.2 per cent higher at a five-year high of 3,443.77.

The deluge of cheap money is also triggering a fresh wave of mergers and acquisitions as well as IPOs on the local scene.

Last Friday, Croesus Retail Trust - a business trust with a Japanese property portfolio - jumped as much as 27 per cent on its trading debut, as it lured investors to snap up its units by dangling an attractive projected distribution yield of 8 per cent.

Given the popularity of Reits among investors, it is not surprising to find investors making a beeline for stocks with the potential to spin off their businesses as Reits. These include Singapore Press Holdings, Hotel Properties and Overseas Union Enterprise.

Last Friday, UOL Group finally made its long-awaited move to take Pan Pacific Hotels Group private. It offered shareholders of the hotel group, in which it already owns 81.57 per cent, a 8.97 per cent premium over its last done price on Thursday for their shares.

Likewise, United Engineers is sparing no efforts in taking WBL Corp private. Last week, it raised its takeover offer for the conglomerate by 35 cents to $4.50 a share. It further underlined its determination by acquiring WBL shares on the open market.

For traders, one bet is to invest in companies which are potential takeover targets.

There is no lack of candidates which fit the bill. Just to name a few counters regularly cited by analysts: Great Eastern Holdings, Wheelock Properties, Singapore Land and GuocoLeisure.

engyeow@sph.com.sg

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