News of Bank of America’s $3b equity investment in US encourages trading in Asia
SINGAPORE shares, like their Asian counterparts,gained as concerns eased that a credit crisis triggered by losses on United States home loans would derail global economic growth.
Markets were encouraged by news of Bank of America Corp making an equity investment of US$2 billion ($3 billion) in Countrywide Financial Corp.
Last week, analysts fretted whether America’s largest mortgage lender would have to declare bankruptcy because it was unable to tap additional funding sources.
The Straits Times Index (STI) closed up 1.5 per cent at 3,370.91, with gainers outnumbering losers 763 to 193.
Yesterday’s trading volume was a moderate 2.8 billion shares, but was still higher than Wednesday’s 1.9 billion.
Despite the generally positive market tone yesterday, market participants continued to urge caution, especially with the weekend looming which could inspire profit-taking today.
Also, some pointed to the performance of bank shares yesterday.
Although bank shares rose, they lagged the broad market and are still well off the highs reached before the recent sub-prime crisis struck.
Then, there was the dismal debut of Parkway Life Real Estate Investment Trust.
DBS finished 0.5 per cent higher at $20.60.
UOB rose 1 per cent to $20.70, while OCBC gained 0.6 per cent to end at $8.60.
“I think the storm is not over, although we saw the worst last Friday and the beginning of the week,” said Ms Daphne Roth, vice-president of equity research at ABN Amro Private Banking.
“The market could still be volatile,” she cautioned.
Investors may be returning to Asian stocks because of strong fundamentals, but DMG and Partners dealing director Gabriel Yap warned, “we’ve had eight major corrections in the last five years and such corrections typically lasted six to eight weeks. We are in the fifth week of correction.”
Markets may also be setting themselves up for disappointment should the US Federal Reserve not cut its funds rate as has been widely speculated.
ABN Amro’s Ms Roth said that “the expectations of a rate cut are overdone…The market is still very fragile so any negative news will cause a pull-back”.
She expects the STI rising a bit more to around 3,400 points, although market valuations are not “extremely cheap” at a price-to-earnings ratio of 16 times currently and 14.95 times for next year.
“I told my clients: Take the chance to do some portfolio cleaning. Focus on stocks that have really good earnings visibility and are defensive,” said Ms Roth.
“We still like the offshore and marine sectors as they are really backed by order books all the way to 2010. It’s just a matter of execution and both Keppel and Sembcorp Marine have good track records. That’s why you can see their prices have come back.”
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