BUOYED BY THE European Central Bank’s unexpected 25 basis point interest rate cut to 1.25% on Nov 3, the Straits Times Index -- led by jumps in Jardine Matheson, Jardine Strategic, Overseas China Bank Corp and DBS Holdings -- opened on a high note on Nov 4, rising 1.9% to 2,863 points from the day before.

 

The ECB lowered rates partly because “what we’re observing now is slow growth heading toward a mild recession by the end of this year,” President Mario Draghi said during his first press conference in Frankfurt. However, the new president made no mention of plans to rescue the region’s weakest nations and warned that growth forecasts for the Eurozone in 2012 were likely to be cut owing to sluggish demand.

 

In that light, the current rally in the local bourse could be a precious opportunity to sell and take profit ahead of further volatility. In a Nov 2 note to its investors, Morgan Stanley warns that equities on the MSCI Singapore Index face earnings risks and increasing volatility owing to the city state’s high external capital and trade linkages to the West. The brokerage expects a 10.6% slide in earnings by 2013.

 

Already, consensus 2012 growth forecasts for the city state has declined from 5.8% to 5.1% during the last three months. Morgan Stanley expects that Singapore should record growth ranging from 1.5%-3.8% for 2012. “We expect Singapore’s GDP CAGR to slow down from 8.7% and 7.2% during 1990-1997 and 2002-07, respectively, to 5.2% during 2011-17. We also expect MSCI Singapore’s earnings growth to slow from 15.9% during 2001-10 to 3.9% during from 2010-13,” it cautioned investors.