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Singapore stocks' winning run threatened by economic headwinds

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[SINGAPORE] Singapore's stock index is set to post the biggest increase in Asia this week, driven by its longest winning streak in two years. The party may be short-lived.

The country's Straits Times Index climbed 2.4 per cent this week to 2,928.58 on Thursday, making it the seventh-best performer globally. The gauge has risen for eight straight days, the longest stretch of gains since December 2014. It is also still one of Asia's cheapest stock markets - the Straits Times Index is trading at 12.4 times reported earnings, the lowest in the region after Pakistan - as investors remain cautious about further gains.

"After this rally, what you need is for fundamentals to be sustainable," said Kelvin Tay, regional chief investment officer at UBS Group AG's wealth management unit in Singapore, who predicts any advance beyond the 3,000 level may be limited. "At this point in time, there are no real catalysts to change that."

Singapore, on track to post its worst economic performance since the 2009 global financial crisis this year, is bracing for more uncertainty as rising protectionism poses risks for the export-dependent nation. The government cut the top end of its 2016 growth forecast to 1.5 per cent from 2 per cent last week. The economy contracted an annualised 2 per cent in the third quarter from the previous three months.

The gains in Singapore stocks this week came after the government said it will provide financing support to the country's marine and offshore engineering companies to help ease some of the liquidity problems the industry has been facing amid weak oil prices.

Keppel Corp, the world's biggest oil-rig builder, and Sembcorp Industries Ltd, the parent company of its largest rival, led gains this week. Keppel jumped 9.1 per cent. Sembcorp Industries added 5.1 per cent, while its oil-rig unit Sembcorp Marine Ltd increased 5.4 per cent on Thursday, helping to pare losses earlier in the week.

The rig builders rose as oil extended its biggest gain in nine months and crude producers rallied after Opec approved the first supply cuts in eight years, with focus now shifting to how strictly it will implement its bid to ease a record glut.

DBS Group Holdings Ltd climbed 4.8 per cent this week. Singapore's biggest lender has exposure of S$20 billion in the oil and gas sector, excluding Swiber Holdings Ltd, one of the worst-hit amid the slump in energy prices.

"Everyone is quite excited about oil," said Joshua Crabb, Hong Kong-based head of Asian equities at a unit of Old Mutual Plc. "But our general view is that over the long run, the demand structure for oil has changed because of the huge move towards renewables."

CapitaLand Commercial Trust Ltd, one of the city state's biggest office landlords, rose 2.7 per cent, the second-best performer on the Singapore real estate stock index and set for its largest weekly gain in almost three months. The property trust expects office rents to pick up at the end of 2017 as supply shrinks, Lynette Leong, chief executive officer of the trust's manager, said in a Bloomberg Television interview on Tuesday.

Singapore Exchange Ltd, the operator of the city's stock exchange, jumped 3.1 per cent, set for its best weekly gain in four months, as trading volume increased following the US elections last month.

Donald Trump's victory and the president-elect's penchant for off-the-cuff social media posts has been a boon for financial markets, said Chew Sutat, head of equities and fixed income at the exchange.

"With Trump, what you see is greater uncertainty, and the opportunity to trade different sectors," Mr Chew said in an interview on Bloomberg Television on Wednesday. "We're really happy that some of the animal spirits are back."

Still, the pain may not be over. The country faces mounting global concerns that could affect trade, including financial market volatility following the UK's vote to leave the European Union, the threat of debt defaults in China and the aftermath of the US election. Mr Trump has pledged not to revive the Trans-Pacific Partnership, a free-trade pact that Singapore and other countries are trying to push ahead.

The city state's central bank has also said that weak global growth and uncertainty over interest rates are among rising "headwinds" that threaten to drag on Singaporean banking profits.

The volatility in 2016 will "continue to persist", said Alan Richardson, a Hong Kong-based fund manager at Samsung Asset Management Ltd.

"I am more confident in saying that in the first quarter or first half, the Singapore market will do better, but it could also change in second half."

BLOOMBERG