Ray of hope from Dow's strong rally

SINGAPORE shares will likely get a boost today by a near 400-point surge in the Dow Jones Industrial Average on Friday.

The Dow's 2.5 per cent gain was driven by the Bank of Japan's surprise move to join the European Central Bank and the central banks of Sweden, Denmark and Switzerland in driving their key benchmark interest rates to below zero.

"For the early part of the week, the market may continue to rebound, partly because it has been so oversold," said remisier Edward Meow.

Nonetheless, he advised caution as "there are still a lot of short sellers and profit-takers out there".

While the Straits Times Index managed to eke out a 2 per cent gain over the past week, thanks mostly to Friday's sharp rally, it ended last month down 8.8 per cent - the worst monthly start to a year since the 2008 global financial crisis.

The market value of Singapore-listed companies shrank by 6.4 per cent last month amid turmoil caused by fears over a hard landing in China's economy and missteps by China stock market regulators, oil price woes and an uneven United States recovery.

Although Citi Research analyst Siddharth Mathur considers Asian emerging markets to be still in a "structural bear market", the BOJ's surprise move "presents the opportunity for a tradeable bear-market rally."

Ken Froot, founding partner of State Street Associates, also sees opportunity for bargain hunting.

"Fears around weakening Chinese growth and the collapse in oil markets have caused institutional investors to see... this steep and sudden downdraft as a buying opportunity," he said.

"Perhaps 2016 will be a happy new year after all," he added.

But Bank of America Merrill Lynch economist Chua Hak Bin cautioned that China's slowdown and market sell-off have hurt Asian stock markets and their growth outlook.

"Singapore, Malaysia, Vietnam and Thailand are probably more vulnerable to China's slowdown, followed by Indonesia and the Philippines," he said.

"China's economic slowdown has weighed on ASEAN exports and trade for the past several years. ASEAN exports are currently contracting nearly 13.8 per cent as at November from a year ago, while ASEAN exports to China are contracting nearly 8.3 per cent.

"China's recent devaluation is also triggering concerns about ASEAN currencies and competitiveness. We are also increasingly worried about... financial difficulties faced by commodity-related or leveraged Chinese companies setting off a contagion that could hurt Asia via bank exposures.

"Singapore is probably most exposed being an international financial centre where local banks have a wider Asian presence," Mr Chua added.

RHB head of Singapore research Ong Kian Lin noted that the further weakening of the Singdollar against the greenback is generally not good for Singapore's equities market.

"Given the headwinds, we advocate investors to stay defensive. Our defensive picks are companies with high dividend yields of more than 6 per cent," he said.

Market participants will be watching for Singapore's Purchasing Managers' Index for January for an early indication of the health of manufacturing activity. It is expected to be released tomorrow.

Also on investors' radar are the third-quarter earnings of Singapore Airlines and Singapore Post, to be released after the close of trading on Thursday.