STI rallies 1.2% on upbeat US GDP, Japan stimulus

THE local bourse rallied on Friday on a double boost of feel-good news - well-above-trend third- quarter growth numbers from the US, and the Japanese central bank's aggressive move to crank up its monetary stimulus plan to revive the economy.

The benchmark Straits Times Index (STI) jumped nearly 40 points or 1.2 per cent to 3,274.25. The celebratory feel was understandably most pronounced in Japan with the Nikkei 225 soaring 4.8 per cent to close at a seven-year high. Hong Kong's Hang Seng Index advanced 1.3 per cent, China's Shanghai Composite rose 1.2 per cent while Australia's ASX 200 climbed 0.9 per cent.

While the upbeat US GDP data - it marked the second consecutive quarter of strong growth, signalling that the recovery of the world's largest economy is on solid ground - was largely expected, the Bank of Japan's (BOJ) decision to expand its asset purchase plan two days after the US Federal Reserve confirmed the end of its five-year asset purchase plan, stunned the market as many had not expected additional easing till early next year. "This is an aggressive decision. Somewhat spookily, the Halloween timing of this easing coincides with when the BoJ intervened aggressively in USD-JPY on October 31 2011," said HSBC Global Research, adding however the BOJ's recent actions are not solely focused on the currency.

Overnight on Thursday, US stocks rallied with the Dow and S&P 500 climbing 1.3 per cent and 0.6 per cent respectively, on the rosy growth numbers and encouraging earnings reports.

ABN Amro expects the robust growth to continue: "This solid report adds to the case for the Fed to start its monetary tightening cycle in mid-2015 after ending its asset purchase programme."

Turnover on the local bourse saw some 1.7 billion shares worth S$1.4 billion done. Gainers outpaced losers, with 327 counters up, 96 down and 369 unchanged.

Banks led the gains with UOB rising 54 Singapore cents or 2.4 per cent to S$23 while OCBC climbed 20 Singapore cents or 2 per cent to S$9.89. Both banks issued their third-quarter results on Thursday with UOB posting a 19 per cent jump in net profit to S$866 million while OCBC's grew 62 per cent to S$1.23 billion from a year ago.

DBS's turn was up on Friday with South-east Asia's largest lender saying it turned in a 17 per cent increase in net profit for the third quarter to S$1.01 billion. DBS shares rose 15 Singapore cents or 0.8 per cent to S$18.48.

Tuan Sing Holdings gained one Singapore cent or 2.35 per cent to 43.5 Singapore cents. The property developer's third-quarter net profit tripled to S$17.53 million on the back of a 84 per cent rise in revenue to S$99.84 million.

The STI has enjoyed three straight days of a good run this week and has gained a commendable 63 points or nearly 2 per cent over the past three days.

But there are key risks. Oil prices plunged last month - the international price has dropped 29 per cent since June - while growth momentum in China, the world's second largest economy, is slowing. The eurozone may still not be out of the woods.

"Right now it's two steps forward, one step back in Europe," says Ken Leech, chief investment officer of Western Asset Management. "That has created anxiety, which moved to fear and even panic. U.S. fundamentals are pretty good. They're solid. Europe's are not. Growth is going to be very sluggish there," he adds.

All of this has implications for corporate Singapore which could lead to an edgy year-end, says CIMB research head Kenneth Ng in a recent strategy report.