Looking for that STI buzz

This article is more than 12 months old

STI's decoupling from Wall Street is not bad, provided there is a catalyst for local market

For much of this year, the Straits Times Index moved in tandem with the Dow futures, thus functioning as a sort of advance barometer for Wall Street in the session ahead.

So if the Dow futures rose and the STI followed suit, it was a safe bet that the US market would be firm a few hours later.

This then meant that movements in the index here tended to anticipate Wall Street's performance rather than react to it, which some observers might consider counter-intuitive given that the US is seen as the prime driving force for global equities.

It does, however, make sense because even though markets may not be as efficient or perfect as they are made out to be, they do prefer to look ahead instead of behind them.

In the past fortnight or so, this relatively dependable behaviour appears to have changed and the STI's movements do not seem to correlate as closely with the Dow futures.

Observers would know that there have been instances when the two have diverged significantly, sometimes because of more localised factors such as last week's play on China banks.

Some might not think this to be too troubling but upon reflection, it does suggest that the local market for now does not feature prominently on the radar of not just major investors but even the program traders and institutions who used to buy the index when the Dow futures rose and sold it when the latter fell.

If so, then this decoupling from the futures market is just another indication of the absence of "buzz" that plagues the local market and that trading representatives have been complaining about for years, the other indication being the lack of big and exciting listings.

The daily manifestation of there being insufficient "buzz" are the dollar volume figures every day, which hover around the $1 billion mark.

However, a decoupling from Wall Street and its futures market is not wholly negative - provided there is a catalyst for the local market that can yield a lasting upswing in prices and volume. The problem is that such a catalyst is not readily visible, at least not yet.

Much, of course, depends on the banks, though one cannot help but think that the three are now viewed as trading stocks, to be bought or sold in the blink of an eye depending on the interest rate outlook.

Much depends on momentum - if the index and turnover were to rise in sustained fashion, funds will suddenly discover the Singapore market.

One possible justification is the belief among analysts that Singapore's economic growth will surprise on the upside, a belief that comes from several months of better-than-expected export figures, underpinned mainly by semiconductors.

Moody's Analytics in its Asia-Pacific Economic Preview for this week said that Singapore's GDP (gross domestic product) probably hit 3.4 per cent in the third quarter after a solid 2.9 per cent second-quarter increase.

"Improved global demand is expected to buttress overall GDP growth," said Moody's Analytics.

"The construction sector also showed signs of improving. Private construction was previously hampered by the persistent falls in residential property prices that resulted from tighter macro-prudential standards introduced in 2013.

"The rebound in activity suggests that the drag from these price declines has finally passed through construction."

Another source could be rebounding property prices, though some might argue this could be detrimental to the stock market if it draws money away from equities as many believe it already has.

stock marketEconomyChina