Will protectionist America derail a nascent global recovery?
So far this year, the Straits Times Index (STI) has risen almost 6.4 per cent, making it one of Asia's best-performing equity markets.
When expressed in US dollars, this translates to 7.7 per cent, which is far superior to the Dow Jones Industrial Average's 1.7 per cent gain over the same period.
Even when the evaluation period is rolled back to Nov 8 when the US presidential elections were held, this outperformance still holds - the STI's gain being about 10 per cent in US dollars versus about 9 per cent for the Dow.
Volume has also improved, though it needs to stay consistently above $1 billion for there to be any substantial benefits for a battered broking industry that has suffered from poor liquidity for 2-3 years now.
Although some sceptics might argue that the STI's movements have been lopsidedly skewed by the banks and that the play on DBS, UOB and OCBC is premature because it isn't entirely clear whether rising US interest rates will be positive for their margins, there is more to it than meets the eye than just heavy concentration on the banks.
Oil prices have risen considerably over the past six months and this has contributed to a recovery in stocks such as Keppel, SembCorp Marine and SembCorp Industries.
Although the jury is still out on domestic economic growth this year, there are signs of a revival.
Last month's surprise 21.3 per cent jump in industrial production has prompted some economists to revise their forecasts.
Maybank Kim Eng's (MKE's) Chua Hak Bin, for example, in a Jan 26 report, said that a synchronised global recovery appears to be underway.
"This is a major shift from the unbalanced divergent world over the last few years. Singapore, being a small open economy, is experiencing a strong cyclical uplift," said Dr Chua.
SIGNS OF RECOVERY
"Manufacturing and trade-related services (wholesale trade, transport and storage) are showing visible signs of acceleration. Financial and business services will likely follow suit and catch-up as the year unfolds..."
MKE's forecast for this year is 2.5 per cent growth.
If you subscribe to the view that the stock market usually - though not always - accurately forecasts the state of the economy 3-6 months in the future, then this could explain the sharp rise since November.
However, not all brokers are as positive, mainly because of an anti-trade, protectionist US.
Nomura for example, in its Jan 27 Emerging markets struggle with "America First" policies, said of all emerging markets, only Russia will benefit from a protectionist America, while Asia could be harder hit than currently thought.
For Singapore, Nomura said that although recent data have been better than expected, it remains cautious of its sustainability given a host of headwinds.
These include political risks in Europe and from Brexit, rising domestic interest rates, high levels of household and corporate leverage, and weakening property and labour market conditions.
It said for ultra-open Singapore, any increase in trade protectionism will likely be highly negative for its growth outlook, because it harms not only Singapore's already struggling manufacturing sector, but also its services sector.
"Our forecast of GDP growth slowing to 0.7 per cent in 2017 from 1.8 per cent in 2016, below the official 1-3 per cent forecast range, would be subject to further pressure and could fall to 0.2 per cent under a more adverse risk scenario, dragged by weaker exports and FDI, and a faster rise in domestic interest rates," said Nomura.
In short, if global growth is picking up, the big question is: Will it be derailed by "America First"?
- This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts