On March 9, the local market benchmark, the Straits Times Index (STI), slumped to a near six-year low of 1,456.95 points. Last Friday, it closed at 2,329.08, up nearly 60 per cent from its March low.
Experts are still divided as to on whether the market bottomed out in March or whether this is a false dawn. But they generally agree that whatever the case, investors are in for a bumpy ride in the months ahead
Most markets around the globe have also rebounded strongly as investors seize on signs that the worst of the downturn may be over.
OPTIMISTIC VIEWS
Calling the rally 'very credible', an optimistic Ms Carmen Lee, head of research at OCBC Investment Research, says the worst appears to be over although there are still factors, such as company defaults, that could derail the current momentum.
On the reasons for her optimism, she points to 'the much talked about 'green shoots' theory, re-stocking in manufacturing countries and better economic numbers from China'. She said: 'In addition, the much-feared US banks' stress test proved to be a non-event.'
On the corporate front, first-quarter earnings came in better than the worst-case scenario, and the pace of decline was less than that seen in the final three months of last year, she said. Mr Gabriel Yap, senior dealing director at DMG & Partners Securities, believes the current rally is exhibiting early signs of a bull market.
'If it had been a bear trap, the rally would have lasted only five weeks. But we are now in the 12th week and still trending upwards. The pullback is not coming,' he said.
A bear trap is used to describe a situation in which there is a sudden recovery, which entices traders to buy, but the recovery is not sustained and is followed by a sudden fall.
Both Ms Lee and Mr Yap point to the strong pick-up in the average daily trading volume on the stock exchange as a positive sign.
'This spiked up to more than 3.3 billion units in May, up fourfold from the anaemic level of around 0.86 billion units seen in February. Accompanied by the strong trading activity, this added to the credibility of the buying momentum,' said Ms Lee.
A bullish Ms Janice Chua, of DBS Vickers Securities Group Research, says the current upswing is sustainable.
'We expect the STI uptrend to be sustained with a near-term target of 2,400, en route to 2,800 over 12 months.'
She added that for the current 12-week rally to qualify as a bear rally, the STI would need to fall to below the previous low of 1,457 points, and keep heading south.
'We see the chances of this happening as improbable, although not impossible,' she added.
PESSIMISTIC VIEWS
Holding a less optimistic view are Mr Albert Lam, investment director at IPP Financial Advisers; and Mr Bob Mock, senior consultant at Alpha Financial Advisers. Both believe that the current rally is driven largely by liquidity - cash pouring into the market.
Mr Lam notes that the influx of funds is the result of pent-up demand from retail investors as well as from fund managers who were afraid of missing the boat as the tide moved higher.
Other factors contributing to the run-up in share prices include the announcement of an increase in the International Monetary Fund's resources by US$500 billion (S$723 billion) and a number of better-than-expected earnings results from companies in the first quarter.
Still, Mr Lam believes that in terms of economic fundamentals, there is insufficient evidence to suggest that the global economy has turned around.
'News that is less bad doesn't equate to good news. Using the US as an example, house prices are still falling, perhaps at a slower rate. But you cannot deny that prices are still on the decline.
'Jobs continue to be cut around the world. With mergers and acquisitions, there will be streamlining and jobs could be lost. Therefore, we think that this is most likely a bear rally,' he said.
He expects a possible sell-down towards the end of the third quarter or early in the fourth quarter. The STI could re-test the low seen in March, although he thinks it will not fall much below that.
Mr Mock holds the view that the rally has been driven by massive liquidity injections from major developed countries, a big economic stimulus package from the Chinese government and an unexpectedly strong win by the pro-market Indian government. 'I do think that the market needs more good news ahead for this rally to continue.'
Looking ahead, he expects a correction soon, possibly in the next few weeks.
'STI should see resistance at the 2,283-2,400 level and may correct in the next one to two months, possibly testing 1,800-2,000,' he added.
