Bulls And Bears

STI rebounds from heavy single-day fall

Investors buoyed by Fed's adoption of quantitative easing, further SME lending

Local shares rebounded yesterday after their worst performance since the 2008 global financial crisis.

Investors took heart in the US Federal Reserve's move to adopt unlimited quantitative easing as well as further lending to small and medium-sized enterprises in the United States most affected by Covid-19.

Sentiment is also being propped up by a weaker US dollar.

The brighter mood sent the Straits Times Index (STI) 3.7 per cent higher on opening and it traded in that range before rising more as European markets opened.

It closed 128.57 points or 5.8 per cent higher at 2,362.05, its best session since April 2009.

Trading volume was 1.5 billion securities worth $1.94 billion, with gainers trumping losers 372 to 139.

Elsewhere, benchmarks in Australia, China, Hong Kong, Japan, Malaysia, South Korea and Taiwan all registered gains.

AxiCorp global chief markets strategist Stephen Innes said: "Asian equities and fixed income certainly like what they see from the Federal Reserve. No one likes the positive correlation between the two when markets are going down, but if they are going up in unison, then it's most welcomed."

That being said, some feel that the foot-dragging on the fiscal front by both the US and Europe as coronavirus cases continue to soar could impede hopes of a sustained improvement in outlook.

Mr Innes noted that "hopefully, there is more to come at the fiscal end of the equation, which could be the ultimate game-changer the market is desperately waiting on".

The local banks staged strong recoveries. DBS jumped 7.9 per cent to $18.21, OCBC Bank gained 6.4 per cent to $8.31 and United Overseas Bank advanced 7 per cent to $18.80.

UOB Kay Hian analyst Jonathan Koh noted yesterday that the share prices of DBS and OCBC factored in non-performing loan ratios hitting 4 per cent to 4.5 per cent by the end of next year due to the outbreak.

He said this is higher than during the financial crisis, when the ratio for DBS was 2.9 per cent and that for OCBC was 1.7 per cent. Given that markets are prone to overshoot during periods of extreme volatility and uncertainty, the banks could continue to see sell-offs in the near future but share price troughs are "in sight", he added.

In line with the broader market, real estate investment trusts rebounded, with iEdge S-Reit Index up 8 per cent. The STI's Mapletree Logistics Trust leapt 11.3 per cent to $1.38, while Ascendas Reit gained 7.4 per cent to $2.46.

A version of this article appeared in the print edition of The Straits Times on March 25, 2020, with the headline 'STI rebounds from heavy single-day fall'. Print Edition | Subscribe