SINGAPORE: Stock markets around the world have been rallying, with the 2017 uptrend spilling over into 2018.
In Singapore, the Straits Times Index (STI) has risen by 3.5 per cent since the start of this year and market experts say the trend is likely to continue for the next six months.
The STI passed the 3,500 mark after markets closed on Jan 4, and has been mostly hovering above that level since. It closed down 0.6 per cent at 3,521.31 on Thursday (Jan 18).
Ms Jane Fu, a sales trader at CMC Markets, said that the rally is both driven by economic fundamentals as well as strong investor sentiment.
Stock indices in major markets such as the US and Hong Kong have also been reaching record highs, according to Ms Fu.
“We can see that this current rally is looking very sustainable, at least maybe until the second quarter of this year,” she added.
PhillipCapital investment analyst Jeremy Ng said one important indicator - the yield spread between 2-Year and 10-Year US Treasury Notes - shows that there is “easily six more months of upside to go before” any market weakness.
The recent global stock rally can also be attributed partly to the Trump effect, industry insiders said.
Ms Fu said that the rally is partially driven by tax reforms in the United States.
Days before Christmas last year, US Congress passed an overhaul of the country’s tax system, with the new plan offering tax cuts for corporations.
Mr Ng said that the stock market rally can be traced back to US elections.
“Prior to the election, the price action within equity markets as a whole has been pretty sluggish. The market only jolted back into life, after the unexpected victory of President Trump,” he said.
“Since then, we’ve seen the market pricing in some kind of tax cuts that he has proposed, as well as the infrastructure spending he has been talking about. That kind of spurred the market into a (sic) strong economic growth.”
On the domestic front, a strong showing in the financials of STI’s blue-chip companies has helped lift stock prices.
“Last year, we can see that most of our blue-chip stocks in the STI have been delivering very encouraging earnings across the four quarters,” Ms Fu said.
Among these stocks, banking, property, as well as those of oil rig builders, have been investors’ favourite picks.
Another factor is positive economic data.
“Singapore, as a country we are doing well. We have seen full-year growth of 3.5 per cent in our GDP,” Ms Fu said.
“And not only that, it's observed that our property market is seeming to come up from a downturn. All these are strong fundamental elements that I believe will drive our stock market.”
Mr Ng said he believes the STI could - over the next few quarters - hit the record high of 3,900 seen in 2007, but not before a market correction.
He also cautioned of danger lurking.
Mr Ng pointed out that the US economy is expanding at levels never seen before, with several market data, for example, the price-earnings ratio, near the range during the dot-com boom.
“What we are seeing is definitely in the late stage economic cycle, which means the next thing that should come into the market is a recession. But before the recession comes in, we are seeing this blow-off phase that's coming into the market. During this blow-off stage is when we actually get the most violent move to the upside within a short time span,” he said.
But central bank decisions might be able to put a brake on this euphoria by cutting back on money supply in markets globally.
The US Federal Reserve is in the process of reducing its US$4.5 trillion balance sheet, while the European Central Bank has started cutting back on its bond-buying program from 60 billion euros (US$73.4 billion) to 30 billion euros.
“Once most of the central banks actually pull back its liquidity, probably that might be some kind of obstruction to the move to the upside for the equity market,” Mr Ng said.