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Will Santa’s Rally Come True Amidst Taper Talks?
Singapore Market Commentary | 06 December 2013
By: Ong Qiuying
Articles (131) Profile

“Unless something kills this economy, the Fed has to taper,” David Kelly, chief market strategist at JP Morgan Funds said. While the inevitable end of quantitative easing has sunk in, the question of when continues to set the markets in unease.

Notably, the US economy grew 3.6% in 3Q13, up from an initial estimate of 2.8%, which is the fastest pace since 1Q12. On top of strong numbers from the manufacturing sector, having expanded for 6 consecutive months, the upcoming non-farm payrolls report could also see the unemployment rate falling from 7.3%, which is going to exert pressure on unwinding the stimulus programme. Already, there are talks of a potential Christmas taper at the upcoming policy meeting on 17 Dec-13, although most analysts expect it to hold off until Mar-14.

In China, the service sector expanded steadily in Nov-13 with the HSBC China Services PMI edging down slightly to 52.5 from 52.6 in Oct-13. Notably, the services PMI averaged a higher reading compared to the last 2 quarters, suggesting a faster tertiary growth rate in 4Q13, which would support China’s 4Q13 GDP growth, given that the tertiary sector now represents about 45% of its GDP numbers.

Locally, Nov’s PMI fell 0.4 point to 50.8 but the electronics sector continued to strengthen. The Straits Times Index closed the fortnight at 3114.17. Bloomberg reported that the value of equities traded on the SGX sunk to a 2-year low in Nov-13 to $914m from $1.3b a year ago, threatening to slow the bourse’s earnings growth following the penny stocks crash in Oct-13. Asiasons Capital, Blumont Group and LionGold Corporation continued to languish in the red, falling 4.5%, 8.8% and 7.6%, respectively on 5 Dec-13.

Looking ahead, we expect headwinds from the imminent tapering although bright spots exist as tapering is likely to be accompanied by reaffirmation of a pick-up in the US economy. Ironic, but it remains to be seen if the Santa Claus Rally can survive the recent spate of improved data as markets grapple with its potential impacts.

Qiuying oversees the construction and real estate investment trusts sectors at Shares Investment.

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