Singapore shares power ahead

The recovery in Singapore blue chips appeared to gain traction, where the benchmark index put on over 5% in the first three days of this week.

Marina Bay Sands
Source: Bloomberg

While the Straits Times Index (STI) broken below the key support level of 2800 last week, the index managed to close higher than its open. On the technical charts, the long lower shadow seen on the bearish candle on 2 October implies there is probably a bullish underpinning.

So far this week, the STI has rallied strongly, adding about 150 points in the first three sessions. The oversold conditions supported the view of a rebound. Admittedly, the up move was in line with the regional risk uptake.   

In addition, a strong rally in Hong Kong equities, in particular, the H shares since the 1 October market holiday may have helped bolster sentiments. Given that China markets are away for a week-long national day break through Wednesday, investors may have used Hong Kong as a proxy trade for the mainland equities. This suggests that Chinese equites could resume trade this Thursday, 8 October, on a positive note. Clearly, this is beneficial to Singapore shares.

Another reason is the more attractive valuation of Singapore stocks relative to other options. The near 16% slump in the STI during the third quarter had pulled the price-to-equity ratio from 15x down to a two-year low of 12.6x at the end of September, making it one of the lowest in the region, and also compared to US and European equities.

In today’s trade, financial stocks led gains in the STI, with UOB adding over 3%, followed by more than 2% gains in DBS and OCBC. Market breadth also improved, with trade volume more than 50% compared to the 30-day average. The number of member firms with its price trading above its 50-day moving average also rose to 40% from below 20% for most of September.

Historically, when the proportion of STI constituents is trading under 20%, a rebound usually follows. The index still needs to tackle the key 3000 barrier to extend its recent rise.

However, I feel the medium term outlook for Singapore stocks is still pretty gloomy, particularly if the growth prospects of Singapore remain dampened by sluggish global growth.


Asia speeds on

Just as we thought the upward momentum in Asian equities was waning, regional bourses seemingly received another push higher in the afternoon trade. Gains were led by the Hang Seng Index (HSI) at over 3%, lifted by strong buying in the H shares. The STI benefited, rallying over 2% as of 4.14pm, trying to put the 2950 resistance to bed.

The BOJ maintained its stimulus programme at ¥80 trillion a year, although governor Kuroda reiterated that the Bank will ease further without hesitation to meet the 2% inflation target. He said that they are only mid-way through reaching the CPI goal, and asserted that Japanese domestic demand remained robust.

The governor also dismissed talks that the BOJ may consider cutting the interest paid on excess reserves parked at the central bank. Earlier, Bloomberg noted that Kazumasa Iwata, a former deputy governor, said cutting 0.1 percent points on excess reserves’ rates could be in next round of easing, if any, as BOJ is fast approaching the limit in the amount of bonds it can buy.

Meanwhile, the Indonesia rupiah continued to strengthen, with the USD/IDR falling over 6% to below 14,000, as Indonesia prepares to roll out its third economic stimulus package as early as tomorrow, 8 October.

Presidential Chief of Staff Teten Masduki said a new fuel price policy as well as other measures to boost consumption would be among the initiatives included in the package. He added that the short-term goal is to address issues around purchasing power and food, while the medium term efforts are directed at easing investment procedures.


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