Month-end, year-end window-dressing likely
LAST week's column suggested that apart from the banks there was nothing to suggest a drastic departure from the low-volume, low-volatility trading which has been a hallmark of daily market life for about 8-9 months now.
This was indeed the case - other than the banks, the occasional play on SingTel, weakness in the offshore marine sector and very tradeable volatility in Genting Singapore, there wasn't much else to, well, bank on.
Our guess is that the banking push comes from three sources - an upgrade of arguably the only really performing sector following the conclusion of Q3 reporting, traders latching on to the only stocks with momentum and liquidity and a fair amount of month-ending window-dressing as underperforming funds capitalise on a window of opportunity to prop up the Straits Times Index or the MSCI Singapore index.
This is because there are some funds which close their books early in November and, in an underperforming year, there is an even greater incentive for others to follow suit.
It's likely that the play on the banks is close to running its course, though there's the possibility of another push late in the week as the month draws to a close. Overall though, it's difficult to be overly optimistic for the market's prospects - brokers who have released 2015 outlook reports appear to be quite subdued in their forecasts for the months ahead. The bottomline? The Singapore market will probably not outperform in the months ahead.
One such broker is JP Morgan, which last week said in its Singapore outlook report that although recent moves suggest a higher probability of the STI breaking out of its 3,387 and 3,465 resistance levels, on a relative basis it sees no rush to recommend an "overweight".
"Singapore continues its transition from what is effectively an emerging market economy (growth driven by increases in labour, 25 per cent of GDP within manufacturing) to a developed market focused on productivity growth" said the broker. "This transition (a) will take time as evidenced by productivity changes thus far; (b) will trigger slower economic growth and higher inflation which drives a weaker outlook for the Singapore dollar."
The flip side of course, is a strengthening US dollar and a US equity market that seems capable of setting new records all the time. A lot of this outperformance comes from US money flowing out of emerging markets back home - according to economists at Goldman Sachs as was reported last Thursday in US newspaper Barron's, US investors brought some US$70 billion in capital back to the US via the sale of overseas stocks and bonds in October.
Combined with the purchases of US stocks and bonds by private investors from abroad, Goldman Sachs calculates that more than US$100 billion in private capital came to American shores in the month.
This is understandable - if Japan has slipped into recession, if Europe is mired in stagnation/deflation and if China is slowing, it probably makes sense to pull money back into familiar territory - even if there are signs that the market is grossly overvalued and growth is much weaker than it should be at this stage of the recovery.
Moreover, Wall Street has been described in this column as the world's "safe haven" because the Federal Reserve has repeatedly made clear its resolve to use the market to generate economic momentum, even though it should be the other way around.
How much more upside does Wall Street have? Impossible to say, though veteran fund manager Jeremy Grantham of Boston-based money manager GMO believes the S&P 500 can rise another 10 per cent before crashing. Even though the US market has not had much of an impact here, its advice is worth bearing in mind.
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