The year of the rabbit got off to a good start with the Straits Times Index breaking above a five times tested resistance at 3,306 indicating an upside of around 3,600. In the short-term, indicators maybe approaching the top end of their range. In addition, the STI has risen by 101 points since Jan 25 and the market is likely to take a breather. However, moving averages are well placed to support progressively higher levels. Support is at the breakout level.
Local risk-free rates as represented by the yield on 10-year Singapore Government Securities continues to fall. As at Jan 26, it stood at 3.79%. Lower risk-free rates are likely to eventually lower weighted average cost of capital and some of this would feed into firmer stock prices.
On the other hand, policy rates remain at elevated levels as this lags risk-free rates. As a result, corporates are likely to continue to grapple with higher interest costs.
Nonetheless, sentiment has taken a turn for the better, and if risk-free rates continue to fall, the STI would have the opportunity to move higher, albeit in fits and starts.
