Doubts linger despite positive signs in financial markets

May 19, 2008

TAKING STOCK

Doubts linger despite positive signs in financial markets

By Goh Eng Yeow

LIFE is slowly but surely returning to normal in the financial markets, as another humdrum week slipped by without any cliffhangers to set the pulse racing.

May, however, has traditionally been a dreary month, a time when investors sell their stocks and go away - and this year has been no exception.

Thus, it is not surprising to find many investors still huddled along the sidelines and not taking any chances.

A few weeks after the self-serving predictions made by a couple of bank bosses that the worst of the global credit crisis was over, the world's financial markets appeared to be climbing back up on their feet again.

Even the stream of write-downs by global banks and insurance giants was shrugged off with hardly a note of concern among investors.

Many dismiss reports of the credit crunch as yesterday's news.

In the past few weeks, credit markets have thawed. Fresh deals are now being executed daily.

Investors are willing to stick their necks out and snap up offerings made by battered banks to repair their capital base.

Even well-capitalised Singapore firms are making the most of the balmy weather.

Last week, DBS Group Holdings raised an eye-popping $1.5 billion from a preference share offering - a feat that some would have considered impossible as recently as in January.

And after months of sitting on cash, investors are stirring again.

They are nibbling at blue chips, such as Singapore Airlines and Keppel Corp, which pay out decent dividends.

Yet, despite the positive signs in the financial markets, doubts continue to gnaw at traders.

True, the life-and-death struggle in the credit markets appears to be over, and there is no longer a fear that a global bank may collapse under the massive weight of bad mortgages in the United States.

The huge amount of money poured into financial markets by the US Federal Reserve and other central banks in the past eight months, however, has stoked fears of a runaway inflation.

Investors have had a taste of what might be in store, with crude oil prices soaring past US$127 a barrel last Friday.

In the 1970s, when inflation was a serious threat, equities produced miserable returns as an asset class, with listed firms struggling to cope with the price distortions that blew holes in their balance sheets.

So, while the benchmark Straits Times Index rose 79.46 points to 3,241.49 last week, overall market conditions stayed quiet.

Investors turned their attention to assessing how the dust would settle in a world humbled by a severe credit crisis.

Until a clearer picture emerges, expect more nail-biting among investors.

engyeow@sph.com.sg



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