BT: 2007 STI (01 Jan 2008)

Record highs, triple-digit falls

R SIVANITHY tracks the STI's performance throughout the year

CRISIS? What crisis? Although 2007 will go down as the year of the US sub-prime crisis - when ordinary Singapore investors gained an unwelcome but unfortunately necessary understanding of exotic financial terms like 'carry trade', collateralised debt obligations (CDOs) and structured investment vehicles (SIVs) - there was plenty to shout about.

In local currency, the Straits Times Index gained 16.6 per cent while in US-dollar terms, its rise was a healthy 24 per cent. For sure it was a turbulent year in which plunges in the index were common and investors were given rude reminders of how global markets are heavily interdependent - and how the inability of some Americans to pay their mortgages can lead to sharp sell-offs in this part of the world.

There was also China, where concerns about official tightening to curb inflation and prevent a stockmarket bubble dragged stocks lower.

With fears of a US recession constantly hovering in the background, how did the local market manage to turn in such solid returns?

In a word - liquidity. Yes, superior earnings and economic growth played a part. And yes, some of it was because of exposure to China and India's superior growth.

But it was liquidity - created by loose monetary policies, starting with the US Federal Reserve - more than anything else that underpinned the bull market of 2007.

And with the Fed likely to continue bowing to financial market pressure in 2008, liquidity should remain high, underpinning stocks and keeping the ball rolling. Crisis? What crisis?

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.