Is the recent bull run here to last?
I was away for an overseas exercise for the past 3 weeks. The STI I last saw before I left was at 2666 and when I came back, it was at 2906. Almost a 9% increase?!
However, the question is: Is the recent bull run here to last?
In my opinion, I do not think it will last. Several reasons as listed below.
- New unprecedented economic situation
With the existing all-time low interest rate being unable to boost the economy significantly, the central banks are slowly moving into the negative interest territory due to the market’s poor sentiments on the future returns. People are now willing to park their money in safe deposits for a penalty. (Note the literal use of word: safe)
The ultra low interest rate may have contributed to a new behavior whereby consumers are now less likely to spend given that they expect the interest rates to fall even lower, hence leading to a lower consumer spending which ultimately binds the economic and companies’ performance.
Another situation might occur. In order to correct this consumer behavior, the central banks may take a tougher stance and raise the interest rates, perhaps at a slower pace, as what we have seen in US’ case. However, given the ultra low rates, a small rate hike would hurt more to the consumers, due to the relative increase in percentages. They are now less able to finance their debts and less willing to purchase more. At the very least, the finance industry would definitely feel the hit.
Either way, it is bad.
- Existing local economic performance
If you have been following the news, you may have known that the local economic performance has not been stellar. The 2015 GDP growth was the lowest since 7 years ago and it is expected to be capped at 2% to 3%. An economic performance indicator, the Singapore Purchasing Managers’ Index, showed its worst record since December 2012 where the manufacturing economy shrank for the eighth consecutive month. This could potentially be due to the slowing regional growth, mainly from China.
Fortunately for Singapore, our government’s coffer is strong enough to temporary prop out demand via public spending. Hence, stemming any possible technical recessions. However, there will be limitations to what the government can do.
Since the stock market performance is usually a reflection of the local economic performance, if the situation does not improve, it may soon reflect in the index.
- Technical Analysis
On the technical analysis side, the STI has been recording lower lows and lower highs. This basically means a general downtrend until a reversal signal has been activated. It would be expected that STI will be heading southwards, unless it is able to break the 3083 resistance formed previously on 26 Oct 2015. I am expecting the STI to retrace lower, or at least hover around the previous lows of 2500 level, before going up higher.
After reviewing all these factors, do you still think that the recent bull run is here to last? I hope you would think again!
Article by: Zi Chao
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