Business

(No headline) - MARKET05

Sixth consecutive rise for local bourse's benchmark index as stocks keep rising on investor optimism

On the back of a synchronised global recovery last year, the market is betting that the economic momentum will carry on through this year, lifting financial assets with it.

People are buying stocks that are going up, a momentum-based strategy that worked well last year. Tech stocks in the US continue to soar.

Yesterday, Japan's Nikkei 225 Index opened the year with a bang, up an extraordinary 3.3 per cent to 23,506 points.

And so Singapore's benchmark Straits Times Index closed yesterday at 3,501.16 points, up 36.88 points or 1.1 per cent.

It was the sixth consecutive rise for the index, which was helped by a mid-afternoon push past resistance levels at the 3,470s. The next target is 3,549.85 - the post-financial crisis high achieved in 2015.

The three local banks continue to hit new historical highs. Brent oil prices crossed the US$68 a barrel mark, driving oil and gas stocks in the region higher. In Singapore, Mandarin Oriental, a luxury hotel stock sensitive to economic growth, soared 9.4 per cent to US$2.22.

Another high-flyer is aviation services firm Sats. It surged decisively past a resistance point of around $5.30 to close at $5.50, up 3.8 per cent.

In a strategy note yesterday, UOB Kay Hian removed Sats from its list of "top alpha" picks meant for short-term trades of one to three months. It said the stock has already outperformed solidly.

Looking ahead, markets are watching the US monthly jobs report today. Signs of more significant wage growth, which would cause expectations of faster US rate hikes, might in turn cause the US dollar to strengthen, strategists said.

On the penny front, one hotly traded small-cap stock was retailer FJ Benjamin, which initially rose from $0.082 to as high as $0.092, before coming back down to close at $0.078 after replying to an SGX query with a standard reply that it does not know anything unusual.

Then there was Midas Holdings, whose activity rivals any blue chip. The aluminium profile maker is the top small-cap play of the year so far.

It rose 43 per cent, or 4.8 cents, to $0.159 in Singapore on Wednesday, and its illiquid shares in Hong Kong more than quintupled.

This was after a train-making associate, NPRT, reported its first contract wins of the year, of some 2.68 billion yuan (S$550 million).

Yesterday, Midas shares initially rose to as high as $0.18, then came down to close at $0.157. Perhaps traders were debating how big a deal the contract win was.

Making trains is a low-margin business. NPRT made net profit margins of under 3 per cent in the last four years.

Given Midas's 32.5 per cent stake in NPRT, and assuming a 3 per cent margin, the contract win works out to an additional 26 million yuan of profit for Midas's share of NPRT, or just a quarter of a Singapore cent per share - spread out over the next three years at that.

It does not end there though. By supplying NPRT with aluminium profiles, Midas receives a stream of income for its core extrusion business. So there is a multiplier effect.

Beyond the dollars and cents, good old contract wins restore some confidence in the company. Investors have worried that China is slowing down its infrastructure spending.

Now, Midas's share price is back at just under 10 times estimated 2017 earnings.

But a sustained recovery in Midas's share price will only take place if it shows it can make serious money from other higher-margin projects: High-speed rail, plates and sheets, and other aluminium products, for example. That remains to be seen after many years of trying.

Ultimately, the fundamentals matter. Only then can momentum work its magic.

For full listings of SGX prices, go to http://btd.sg/BTmkts