Goh Eng Yeow
4/2/2013
THERE is no better way to give the Dragon Year a rousing send-off as it enters its final trading week than the exuberance which has sent stock markets soaring everywhere.
As Chinese everywhere mark Li Chun - the first day of Spring on the solar calendar - today, there are signs of fresh shoots of economic growth, spurred on by a stronger United States jobs report, evidence of manufacturing growth in China and improving factory activity in Europe.
The resulting improved market sentiment propelled Wall Street above the 14,000 bulwark for the first time in over five years last Friday, as investors set aside lingering concerns about the US economic recovery.
In Singapore, the benchmark Straits Times Index ended 21.83 points higher at 3,291.14 last week, as it inched within striking distance of the post-global financial crisis high of 3,313.61 reached in November 2010.
Yet, even a few months ago, such bullish fervour would have been unthinkable. Investors had confined themselves to the sidelines, cowed by potentially calamitous events like a possible break-up in the euro zone or the US fiscal cliff.
But the wobble has since steadied, with the Vix Index - Wall Street's best gauge of fear tracking the volatility of the S&P 500 Index - falling to close to historic low levels.
And investors have been pouring huge sums into equities. Last week alone, financial data provider EPFR recorded US$18.8 billion (S$23 billion) of inflows into all equity funds. This was more than six times the US$3 billion inflow into bond funds.
Asia proves to be a strong magnet for equity investments, with funds investing in regional stocks attracting US$1.6 billion in inflow - marking the 21st week of inflow into Asia, according to Citigroup Investment Research strategist Markus Rosgen.
Yet, even as traders celebrate what has turned out to be an ebullient Dragon Year, the big question is how markets will fare in the Year of the Water Snake as it slides in on Sunday.
Analysts have been outdoing themselves in making bullish projections, smug in the conviction that as long as the US central bank continues to flood the financial system with fresh liquidity as it prints US$85 billion every month, the global stock market rally is safe.
But the fear at the back of many traders' minds is that the Year of the Water Snake may turn out to be a game of snakes and ladders, as share prices scale walls of worry, only to slither down in fear after that.
One worry is that the rally is not backed by fundamental growth in companies. Indeed, the most eye-catching recent corporate headlines were the mind-boggling write-offs made by financial giants such as Citigroup and Deutsche Bank and the savage axing of jobs by American Express.
Even big-picture market strategists are nervous about rotation out of bonds into equities.
In his report "Hello Great Rotation", Bank of America Merrill Lynch strategist Michael Hartnett warned: "The two major risk scenarios to an orderly Great Rotation are: a bond crash as in 1994; a risk shock as in 1987, driven by a currency war."
Fengshui expert Lynn Yap describes the forthcoming lunar year as "murky", thick with scandals and accounting fraud. "The Snake seldom smiles and therefore it is going to be a sad year with tears."
Her advice to those who find it rough-going: Go watch a movie or pray.
engyeow@sph.com.sg
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