IF YOU are betting on the local market today, chances are you will be leaning towards the bears.

After all, with a negative Friday close on Wall Street, a market holiday today in the US and lingering concerns over an overheating property market in China, there seems little reason to hope for a positive session here, or across the region.

 

The Dow Jones tumbled 100.9 points to 10,609.65 last Friday, while the broader S&P 500 recorded its biggest drop since mid-December, giving up 1.1 per cent to 1,136.03 after JPMorgan Chase reported a loss by its retail banking franchise.

 

Indeed, trading in the markets will be characterised by volatility in the coming weeks amid more earnings reports.

 

After rising to an 18-month high at 2,933 points last Monday, the Singapore Straits Times index ended the week at 2,908 points. Despite the volatility, many analysts still see the index breaching the key 3,000 within the next few weeks, if not days.

 

The big question is, after having avoided tumbling into a huge pit in 2008/09, will the global economic and corporate recovery have enough pace and momentum for markets to recover to pre-2008 levels.

On corporate earnings, they said in a recent report: 'Our analysis suggests that, given vigorous corporate cost-cutting, even a subdued recovery in the global economy should be enough to generate 30-40 per cent non-financial profit growth this year.'

 

Indeed, the view among most strategists is that the outlook for the global economy, asset prices and equity markets remains positive for the next six months at least.

 

There is good reason for this.

 

Corporates have used the crisis to recalibrate growth strategies, refocus on core strengths and cut costs to the bone. Meanwhile, governments and regulators have become more proactive in dealing with emerging trouble spots within their economies, and their financial sectors.

 

China's move last week to rein in credit was a case in point.

 

For the Singapore market, the first half of this year is likely to see a good run, thanks to earnings upgrades, the opening of the integrated resorts and firmer GDP headline reports. That being the case, adopting the right stock-picking strategy will separate the men from the boys.

 

As Merrill Lynch BOA advised last week, investors should focus on thematic stock picks.

 

'Our top picks for 2010 reflects the key themes highlighted above, that is, cyclical economic upturn, IR exposure as well as emerging market proxies,' it said.

 

Its top three picks for Singapore are DBS, Straits Asia Resources and Noble. And for investors who have the appetite for 'more ideas', it suggests UOB, CDL Hospitality Trust, Singapore Airport Terminal Services and CRCT.

 

Among the mid-caps, the promising thematic and momentum plays identified by analysts include Comfort-Delgro, Parkway, Raffles Medical, and SC Global. Other potential outperformers include Kingsmen Creatives, which is landing more projects in Singapore and Shanghai (where the 2010 Expo will be held); Design Studio, whose orderbooks are thickening steadily; FJ Benjamin, which will benefit as the retail recovery momentum intensifies; and China-controlled rubber play GMG Global, whose parent is China's largest rubber supplier.

 

Among the S-chips, animal vaccine maker China Animal Health stands out as a potential winner, with earnings poised to leap 50 per cent this year.

 

Given the challenges, one can easily take a pessimistic view of the market this year. But those who profit will be the ones who read the themes and ride the momentum as a synchronised global recovery kicks in after two tough years.