Markets Stabilise As Fed Gains More Trust

Source : TODAY, Thursday, August 23, 2007

A MEASURE of stability seeped into Asia’s stock markets yesterday as investors grew more confident that the United States Federal Reserve will manage to defuse a crisis in credit markets.

Confidence to step back into financial markets grew after Mr Ben Bernanke agreed to use “all of the tools at his disposal” to restore stability to markets roiled by mortgage defaults this month, Senate Banking chairman Christopher Dodd said on Tuesday after meeting the Fed chairman.

In Singapore, the Straits Times Index rose 2.9 per cent to close at 3,321.50. The benchmark has dropped 9.4 per cent since its July 24 record high. “There’s a feeling that the Fed is trying its best to help,” said Mr Jay Moghe, who oversees US$150 million ($229 million) at Opes Prime Asset Management in Singapore. “You’ll see continued volatility but investors who are prepared to take a medium-term horizon should stick to their guns and pick up value stocks.”

AmFraser’s Najeeb Jarhom said the STI’s intraday moves suggest the index is heading higher. “If the STI can reach and overcome 3400, it is unlikely to test 2962 again, and strong support will come around 3100 to 3150 in the event of another selling wave,” he said.

Mr Joseph Tan, a Singapore-based strategist at Fortis Bank, urged caution as “not everybody is entirely convinced that the worst is behind us”. Trading volumes will likely drop while investors await Fed action and its assessment of the US economy, he said. The Fed is expected to cut its overnight lending rate between banks by its Sept 18 meeting.

“I would say the market is now in a situation where they are hoping for the best and preparing for the worst,” he said.

Mr Marshall Gittler at Deutsche Bank said the credit crunch “has not been solved by any stretch of the imagination. The equity markets may be saying that it’s over, but the fixed income markets certainly are not”.

Singapore’s banks led the rebound, with DBS closing up 1.5 per cent at $20.50, UOB rising 2 per cent to $20.50 and OCBC gaining 3 per cent to $8.55.

Rating agency Fitch praised the three for being the most transparent banks in Asia regarding their exposure to the US sub-prime mortgage market.