A 13.27-point rise in the Straits Times Index (STI) to 2,855.68, low volume consistent with the averages of the past three months that amounted to 1.5 billion units worth $972 million excluding foreign currency issues, and an advance-decline score excluding derivatives of 205-131.

Upward momentum

In brief, these were the salient statistics of yesterday's cautious trading session during which developments in the West continued to stay in the forefront of investors' minds.

Over in Hong Kong, the Hang Seng ended slightly firmer and European markets opened mainly in the red but by 5pm local time had managed to stem their losses.

Some in the market were hoping that the US Federal Reserve would announce a third round of liquidity expansion known as QE3 when the central bank held its June Federal Open Market Committee (FOMC) meeting yesterday.

All eyes are also on the G-20 meeting in Mexico where hopes are high that more bailout money will be given to save troubled European nations such as Spain and Italy.

Against this wait-and-see backdrop, there was mainly speculative activity in low-priced issues - the top five most actively traded counters were priced below 25 cents each, including a Macquarie call warrant on the Hang Seng Index.

In its Regional Market Strategy, Maybank Kim Eng said the global economy needs restructuring, not the temporary "sugar" highs from more liquidity.

"Hence we believe the risk to economic and earnings growth remains biased to the downside," said MKE. "Equity risk premium (ERP) will be elevated, giving a high probability that the MSCI Asia ex-Japan index will post single-digit returns this year."

The broker said it is staying defensive in its allocation, keeping the longer-term portfolio focused on stocks that should benefit from domestic reflation.

"Key sectors are consumer discretionary, financials and, to a lesser extent, materials and energy," it noted.

In OCBC's latest Wealth Weekly, its analysts said the rebound from Greece's elections is likely to be short-lived as much depends on the new government's ability to wrangle concessions from the European Union.

"Those looking to buy should tread with caution - stagger purchases and stay diversified. We continue to advocate short-dated corporate bonds, especially those with strong brand names...," said Michael Tan, head of Premier Wealth Advisory, OCBC Bank.

In its daily report yesterday, IDEAglobal said the bounce in the major equity indices since June 2 was because of expectations that Western central banks would intervene to bail Europe and the US out of trouble and at a time when US bonds were providing negative real returns.

"We expect the FOMC to continue to sound cautious and say it will use all tools at its disposal; however, we don't expect it to implement QE3 at this meeting, until it sees further deterioration...," said IDEAglobal.

"With Greece about to form a coalition government, and (Greek election winner and prime minister designate Antonis) Samaras talking about renegotiating the austerity packages, we can see a 'risk-on' phase, as some European officials are open to the idea of alleviating some of the bailout restrictions, despite German protest. However, we don't expect an explosion of bullishness, as details need to be worked out and Spanish debt issues remain."