HOPES that Wall Street will continue to believe in an economic turnaround yesterday combined with hefty doses of quarter-ending window-dressing to propel the Straits Times Index up 67.11 points or about 4 per cent to 1,758.79. This has lifted the index from a steep 290-point or 17 per cent loss to a 12-point or 0.7 per cent gain so far this quarter.
Heavyweight index stocks were the main target, led by banks and property. Turnover excluding foreign currency issues amounted to 1.6 billion worth $1.4 billion, up from Wednesday's $988 million.
Providing the backdrop was a 3.6 per cent jump in Hong Kong's Hang Seng Index, which in turn was probably in response to expectations that the US market would buy into faint signs that its economy may be close to a bottom following a small uptick in the latest home sales and durable goods figures.
Counting in favour of this was a 60-point rise in the June futures contract on the Dow Jones Industrial Average; counting against it was a mixed opening across Europe in the late afternoon.
In the commodities segment, Olam International stood out with a 10-cent or 7.2 per cent rise to $1.48. Credit Suisse in a March 24 report rated the stock an 'outperform', saying that Olam is one of the best ways to play the structural agricultural commodity theme, given the company's robust business model and well-defined growth strategy. Credit Suisse has a $2.10 target price for Olam based on a discounted cash flow model.
Brokers reported clients attracted by the upward momentum now desperate to buy, driven by fear of being left out of what might turn out to be yet another bear market rally. 'A week ago, nobody was interested. Today, people are afraid of missing out, especially those who think the push might not last,' said a dealer.
Another noted that the market has been plagued by bad news for so long that the absence of fresh bad news - at least for the past few days - has enabled some buying momentum to get a grip. The near-term problem, however, is that there are no signs that earnings have bottomed yet, while longer-term it is not clear if the US's bank rescue plan will work.
Sceptics of the economic recovery theory, in the meantime, point to the timing of the run during the final two weeks of March, as suggesting that an absence of fresh bad news and the announcement of a new, supposedly attractive US bank rescue plan, were perhaps the cues that triggered hectic quarter-ending short-covering and window-dressing by funds that had taken a drubbing this year and are in serious need of padding their performance.
Whatever the case, the bounce of the past fortnight has taken the STI, from 1,456 on March 9, up 302 points or 21 per cent in three weeks.
Whether this continues would depend heavily on the success of US Treasury Secretary Timothy Geithner's newest bank bailout plan over which scepticism abounds.
An article titled 'Geithner's plan isn't money in the bank', which was co-authored by MIT economics professor Simon Johnson said that there are three reasons for concern over the plan for the government to partner the private sector in buying up bad bank assets:
The public subsidy may not be enough because banks are carrying assets on their books at very high values.
Banks have an incentive to dump their worst assets first and because bidders know this, they may not bid at all.
The public may recoil at a plan which could see the private sector make theoretically riskless large returns and put pressure on the government.
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