Buying Frenzy Drives Asian Bourses To Record Highs

Source : The Straits Times, Sept 28, 2007

STI has climbed by 752 points in the five weeks since its sub-prime low point

THE sub-prime crisis that sent global markets crashing last month looked like a minor blip yesterday after a buying frenzy drove key regional bourses to record highs.

Singapore, Hong Kong and Australia finished at all-time highs, wiping out the red ink that deluged markets last month and left investors fearing months of bloodletting.

In just five weeks, the Straits Times Index (STI) has rocketed an astounding 752 points, or 25 per cent, since its sub-prime low-point on Aug 17.

Hong Kong has had an even more impressive resurgence - soaring almost 40 per cent since the Aug 17 low.

'The party is back in full swing. My clients are buying across the board,' said Singapore brokerage dealer Francis Lee.

The investor stampede back to the market sent the STI up 64.68 points, or 1.77 per cent, to 3714.77, trumping the old record of 3,665.13 set on July 24.

Yesterday's charge was ignited partly by regional speculation that China's state-owned funds like China Investment Corp are on the prowl with billions to invest.

This is part of Beijing's strategy to diversify out of the weakening dollar.

But the biggest driver was hope that the United States Federal Reserve would make further cuts in interest rates before the end of the year.

Giant investment banks such as Morgan Stanley are expecting the Fed to ease rates by another half percentage point to forestall any slowdown in the US economy.

This would be on top of the half-percentage point cut last Tuesday which propelled the sharp rebound, first on Wall Street and then globally.

The US aim is to bolster its jittery financial markets and faltering housing sector, both battered by the crisis over sub-prime home loans.

These mortgages - made to borrowers with doubtful credit histories - have been bundled up into complex financial instruments and sold on to various institutions around the globe. But growing doubts over their viability hit banks from Frankfurt to Sydney last month and sparked panic among investors.

Nevertheless, the strength of the rebound is so powerful that analysts believe the regional bull-run is still very much on track, despite continuing concerns over the US mortgage market.

'The trend has remained the same in the past four years, since the current rally started in March 2003. Whether it is a 10 per cent or 15 per cent correction, we can expect new highs to be recorded after that,' said Mr Najeeb Jarhom, AmFraser Securities' research head.

And after pulling out US$2.6 billion (S$3.87 billion) in a single week during last month's meltdown, foreigners have been pouring money back into Asian equities, noted Citigroup analyst Elaine Chu.

Last week, investors placed US$982 million in funds investing exclusively in Asian equities. This followed the US$1.6 billion invested the previous week.

JPMorgan Private Bank's senior portfolio manager, Mr Elan Cohen, expects the partying in regional equities markets to continue.

'Investors are now more sanguine about putting money back into Asian equities, as they can look forward to the Fed rates cut to stimulate economic growth,' he said.