Business

Investors banking on 'Trumponomics' to deliver

First we had "Reaganomics", then came the "Greenspan put", which was then followed by the "Bernanke put".

Now, we have "Trumponomics", sometimes used interchangeably with the "Trump put", which means essentially the same thing as all its predecessors - official pronouncements about stimulus that prompt frenzied buying of Wall Street stocks.

The difference, of course, is that in the case of Trumponomics, there are still no details on what exactly will be done.

Whatever the case, the impact here was a five-point rise for the Straits Times Index to 3,122.34, notwithstanding a 14.14-point loss yesterday; the latter perhaps due to players reacting to strong warnings from the US Federal Reserve that interest rates would have to be raised soon.

In the federal funds futures market, the implied probability of a rate hike in two weeks is now 90 per cent.

That US players are prepared to buy without having any clarity on what Trumponomics involves became clear mid-week when US President Donald Trump delivered his address to US Congress, which although appearing conciliatory on immigration issues, was also short on economic, fiscal and foreign policy details.

Wall Street's upward burst that took the Dow Jones Industrial Average above 21,000 for the first time on Wednesday suggested that investors there were banking heavily on Mr Trump eventually delivering on his promise of a "phenomenal" tax plan and "massive" infrastructure spending.

Perhaps the most important improvement here is volume, which now regularly tops S$1.3-1.4 billion daily.

Here, investors have also been banking heavily on an improving outlook, possibly because higher interest rates mean better bank earnings, and possibly because global growth appears to be finally improving.

A late manufacturing and export spurt in 2016 meant gross domestic product (GDP) growth was revised from 1.8 per cent to 2 per cent and the momentum seems to be carrying into 2017.

However, the improvement originated in North Asia, where economies could be threatened by Trumponomics if the latter encompasses trade protectionism and a shift to a more insular, inward-looking US.

Perhaps the most important improvement here is volume, which now regularly tops S$1.3-1.4 billion daily, which compares well to the broking industry's ballpark estimated breakeven point of S$1 billion. Yesterday, turnover amounted to 2.2 billion units worth S$1.2 billion.

It's also worth mentioning that the value per unit traded has been rising, from around S$0.40 last week to S$0.55 yesterday.

Even though higher dollar values do not necessarily equate to higher quality, the rising unit value does indicate a smaller proportion of penny speculatives in daily trading, which is arguably a good thing.

Speaking of penny stocks, Noble Group was in focus this week after its old nemesis, Iceberg Research, last week released another critical report.

After a brief but violent sell-off, Noble shares stabilised this week, rising S$0.01 on Friday to S$0.225 on volume of 110.4 million. Among blue chips, pressure emerged on Hongkong Land, CapitaLand and Keppel Corp. All three banks also ended marginally weaker.

  • This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts