Clear PAP win and funds from abroad fuel stocks

By Goh Eng Yeow
May 9, 2006
The Straits Times

SINGAPORE'S sizzling stock market rally hit a record high during trading yesterday with shares soaring on the back of a resounding election win, good economic news and a flood of new cash pouring into blue chips.

And fears by some traders that the World Cup next month - and school holidays at the same time - would send the market backwards have also been kicked into touch.

Market bulls are now predicting that the Straits Times Index (STI) will hit 2,800 by the end of the year - a level once thought to be unreachable this year.

Trading yesterday started in a frenzy with the STI hitting an intra-day record high of 2,665.99 in early morning trade before inching back to close at 2,657.78.

This was 25.36 points up on Friday but two points shy of the record close. The STI has gained 13.2 per cent this year.

'It is a very active trading day,' said one dealer, 'the phones started ringing way before opening bell.'

'It's a bull market,' said another trader. 'The hype has just started.'

The latest buying binge, which started about two weeks ago, has been fuelled by a steady diet of high corporate profits and good news, from here and overseas.

The Government's resounding election win on the weekend has bolstered confidence, as have comments from Prime Minister Lee Hsien Loong that the official gross domestic product forecast was likely to be revised upwards from the 4 per cent to 6 per cent range outlined earlier in the year.

The positive economic position could not be better timed and is turning Singapore into a magnet for investment funds from China and Middle East oil money.

'There is a significant increase in new cash flooding the market. Blue chips are holding up, while buying has spread to penny stocks,' said NetResearch managing director Kevin Scully.

He anticipates more foreign funds heading here, piling into blue chips and China-based stocks.

'At least US$2 billion (S$3.2 billion) may be coming out from China, after the go-ahead to its pension fund to invest overseas.

'A lot of money is also coming out from the Middle East, as oil-producing countries recycle their petro-dollars,' he added.

It is all giving analysts confidence that the rally will continue, despite the World Cup early next month - traditionally a period of weak market sentiment as dealers and traders turn to football.

But some advocate caution, given the Straits Times Index's giddy heights recently.

'We advise investors to either adopt a shorter investment timeframe, or sell into strength ahead of an expected lull period in June,' said OCBC Securities Research in a note yesterday.