Markets have bottomed out but spectacular gains unlikely: Analysts
By Yang Huiwen 26 March 2009
What a difference a few weeks make.
Earlier this month, as bourses almost everywhere continued to spiral downwards, it seemed almost unthinkable that a major rally was just around the corner.
Some markets including Singapore took a breather yesterday, but nevertheless the recent run-ups are striking.
The most closely watched barometer of all, the Dow Jones Industrial Average in New York, has gained 17 per cent since its March 9 closing low.
Asian markets are also up 15 to 20 per cent from their early March lows. The Straits Times Index (STI), for instance, is up 16.1 per cent since March 9.
All this stock market cheer is prompting a nervous thought: Is the worst for stock markets really over?
Crystal ball-gazing is a business fraught with uncertainty but some analysts are willing to cautiously suggest the answer might be yes.
They say optimism started pouring into markets after the US government’s long-awaited plan to purge banks’ toxic assets, as well as Treasury Secretary Timothy Geithner’s programme to unfreeze credit markets, began to take shape.
US President Barack Obama said on March 3 that buying US shares ‘is a potentially good deal’ for long-term investors, and since then, the index has added about 14 per cent.
The enthusiasm has since faded slightly with the Dow Jones’ 1.5 per cent fall overnight and some key Asian markets, including Hong Kong, Tokyo and Singapore, ending in the red yesterday.
Veteran fund manager and Templeton Asset Management executive chairman Mark Mobius is among the optimists who indicate that markets seem primed for the next bull market. Others stop short of being overly optimistic, but say that markets have bottomed out.
For the local benchmark STI, they say the floor was probably reached at the 1,450 level and it is unlikely to drop below that. ‘We’ve probably seen the worst,’ says technical analyst James Lim of DMG Research.
But he adds: ‘Don’t expect such spectacular gains as we’ve seen in the past few days or even past bull runs. The euphoria from the Fed’s US$1.2 trillion (S$1.8 trillion) infusion into the system had died down, this could soon be the case as well.
‘It will probably be a slow and steady climb from here.’
He expects the STI to reach 1,800 by the end of the year.
Of course, stock markets may revisit their recent lows if the US government’s act to clean up its banks hits a snag, or if its housing market deteriorates further. Another danger: The economic recovery tipped for later in the year may fall short of expectations.
‘This is a bottoming process and not the start of a bull run,’ says UOB Kay Hian analyst K. Ajith. ‘The risk-reward equation is now less favourable.’
‘The run-up for blue chips tends to be more sustainable,’ says Mr. Alan Lok, a director at Sabio Global. ‘The confidence of investors has been boosted significantly for badly battered blue chips.’ Blue chips are seen as less risky than smaller plays.
For the STI, he sees ‘strong support’ at the 1,580 level, adding that it may not hit the 1,200 level as some analysts had been expecting. ‘Some may risk being over-pessimistic,’ he says. But he adds: ‘It is not expected to perform any worse. The damage is already done, but growth will not come in so quickly.’
Based on his observation, he says bearish hedge funds, which make fast money shorting the markets, are staying on the sidelines as they are afraid of the market recovery.
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Is it time for a bull run? Yes, but...
Markets have bottomed out but spectacular gains unlikely: Analysts
By Yang Huiwen
26 March 2009
What a difference a few weeks make.
Earlier this month, as bourses almost everywhere continued to spiral downwards, it seemed almost unthinkable that a major rally was just around the corner.
Some markets including Singapore took a breather yesterday, but nevertheless the recent run-ups are striking.
The most closely watched barometer of all, the Dow Jones Industrial Average in New York, has gained 17 per cent since its March 9 closing low.
Asian markets are also up 15 to 20 per cent from their early March lows. The Straits Times Index (STI), for instance, is up 16.1 per cent since March 9.
All this stock market cheer is prompting a nervous thought: Is the worst for stock markets really over?
Crystal ball-gazing is a business fraught with uncertainty but some analysts are willing to cautiously suggest the answer might be yes.
They say optimism started pouring into markets after the US government’s long-awaited plan to purge banks’ toxic assets, as well as Treasury Secretary Timothy Geithner’s programme to unfreeze credit markets, began to take shape.
US President Barack Obama said on March 3 that buying US shares ‘is a potentially good deal’ for long-term investors, and since then, the index has added about 14 per cent.
The enthusiasm has since faded slightly with the Dow Jones’ 1.5 per cent fall overnight and some key Asian markets, including Hong Kong, Tokyo and Singapore, ending in the red yesterday.
Veteran fund manager and Templeton Asset Management executive chairman Mark Mobius is among the optimists who indicate that markets seem primed for the next bull market. Others stop short of being overly optimistic, but say that markets have bottomed out.
For the local benchmark STI, they say the floor was probably reached at the 1,450 level and it is unlikely to drop below that. ‘We’ve probably seen the worst,’ says technical analyst James Lim of DMG Research.
But he adds: ‘Don’t expect such spectacular gains as we’ve seen in the past few days or even past bull runs. The euphoria from the Fed’s US$1.2 trillion (S$1.8 trillion) infusion into the system had died down, this could soon be the case as well.
‘It will probably be a slow and steady climb from here.’
He expects the STI to reach 1,800 by the end of the year.
Of course, stock markets may revisit their recent lows if the US government’s act to clean up its banks hits a snag, or if its housing market deteriorates further. Another danger: The economic recovery tipped for later in the year may fall short of expectations.
‘This is a bottoming process and not the start of a bull run,’ says UOB Kay Hian analyst K. Ajith. ‘The risk-reward equation is now less favourable.’
‘The run-up for blue chips tends to be more sustainable,’ says Mr. Alan Lok, a director at Sabio Global. ‘The confidence of investors has been boosted significantly for badly battered blue chips.’ Blue chips are seen as less risky than smaller plays.
For the STI, he sees ‘strong support’ at the 1,580 level, adding that it may not hit the 1,200 level as some analysts had been expecting. ‘Some may risk being over-pessimistic,’ he says. But he adds: ‘It is not expected to perform any worse. The damage is already done, but growth will not come in so quickly.’
Based on his observation, he says bearish hedge funds, which make fast money shorting the markets, are staying on the sidelines as they are afraid of the market recovery.
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