My Take On The KLSE Sell-Off: Jittery Investors!

Wednesday's 3.28% (40.63 point) fall was in my view, an act of overreaction from investors due to knee-jerk effect as a result of the overnight sell-off on Wall Street. KLCI plummeted 8% from the opening bell, catching many investors by surprise and in a frantic manner. Based on my own source of information, this panic selling was mainly caused by retail investors, day traders and foreign hedge funds. So frantic were the selling that the sellers were ever willing to "give-in" whatever price that the "buyers" were bidding, hence the huge jump in prices spiralling downward! I would classify this group of traders as the "lucky" buyers and panicky "sellers"...Reason the buyers were lucky was because they were able to get a good price considering the fact that the market had gradually recovered a major yard of the lost ground over the remainder of the trading day. Sorry for the panicky sellers! Indeed a lesson learned which I am sure, will happen again and again in the course of market trading. On the reverse, this had provided great opportunities for investors to pick up valuable stocks at cheap bargains and at the same time, cancel out the overbought market before the crash. In my view, this is indeed healthy from the perspective of long term market sustainability, albeit it was rather too dramatic and traumatic!

So what causes the market to crash at the first place? No thanks to China's Shanghai composite index in which the market had fallen by nearly 9% on Tuesday amidst the following reasons:
- rumours of Chinese Government's intention to curb the excessive speculation in the Chinese market, by introducing capital gains tax ;
- talk of an imminent interest rate hike after poor inflation data in the past two months;
- Sparked by a major sell-off from a major Foreign fund, triggering the others to do the same and lock in the gains (Shanghai index had risen 130% in Year 2006!);
- hedge funds unwinding yen carry trade fueled purchases, as a result of Japan's recent hike in interest rates;
- Comment on potential slower growth and recession in US by year-end as quoted by Alan Greespan in Hong Kong;
- Crude Oil price increased to around USD61 per barrel, causing inflationary fears

As quoted by Shanghai Securities news, the Chinese Government had on Wednesday quashed such rumours pertaining to introducing capital gains tax as a form of curb speculative investment.

Based on the above events, I believe the sell-off in KLSE and the regional markets will be shortlived based on the following reasons:
- the global selling were caused by a systematic program selling as a result of overheated stockmarket in China, rather than triggered by a known major change in economic or political conditions. Market condition in Malaysia has in fact remained fundamentally sound and economic growth are expected to continue to be robust. I shall explore some of the key economic business drivers for Malaysia in a later post.
-crude oil price expected to fall after satisfactory oil inventory report;
- Chinese market has subsequently rebounded on Wednesday trade to end up close to 4% rise;
- US Federal Reserve Chairman Ben Bernanke clarified Wednesday that U.S. financial markets appear to be "working well" and are functioning normally. ernanke said the selloff did not change the Fed's view on U.S. economic growth. Bernanke was quoted in CNN as saying that there is really no material change in the expectations for the U.S. economy since he last reported to Congress couple weeks ago. He also expressed his believes that there is a reasonable possibility of strengthening of the economy sometime during the middle of the year;
- Strong fundamentals in Malaysian market remained unchanged, supported by promising stronger corporate earnings backed by the latest overall quarterly corporate earnings report to-date;

As such, my view is that KLSE will recover from the short-term losses and continue to be bullish in the medium term. This will be an excellent opportunity for long term investors to pick up fundamentally sound stocks and/or undervalued companies.

A State of Early Shock!

What an eventful day! I was watching in horror the performance of Kuala Lumpur Stock Exchange this morning and wow!! our index fell by 100 points within minutes of the opening bell! This is a whopping 8% off from yesterday's close, taking the cue from regional markets and the overnight sell-off on Wall Street! For the matter, Dow Jone fell more than 3% overnight and is the worse fall in the aftermath of Sept11 attack!

Just few days ago, Malaysia stockmarket was buzzing with excitement as the index had reached all time high. Retail investors, analyst and journalist were all so excited with the market potential that many of them have predicted the index to surpass Malaysia's historic new high (ie., 1332) to happen this year! The entire prediction has now turned upside down in a matter of days if not hours! No thanks to China's Shanghai stockmarket which plummeted more than 8% yesterday and created a worldwide typhoon! I can't help it but old painful memories reminiscent of the 1997 Thailand's market crash came into my mind! Is this another "tom-yam" effect that is going to blow away worldwide stockmarkets like a storm?? My analysis of the current situation is next. Stay tune.

A New Era (continues..)

Just to finish off my previous post, it is also worth mentioning a special thank you to all my pal from "My Perfect10" Club, particularly Franco and Cheong! I won't have written my own blog so soon without your encouragement! Also a special thanks to my coach Fione! I will also be creating links to my pal's respective Blogs soon...stay tune!

Regards

A New Era

Hi, welcome and thank you for visiting my Blog! Frankly, this is the first time ever I am writing a blog of my own...So in a way there is a great sense of achievement and a new era personally for myself for the way I communicate with all my friends out there! This is probably a surprise for my friends due to my background in I.T.! Well, it is a shame for me but guess it is never too late!, right!

Well, I only learned about Blogging from my friend David Chin some time last year but really only get to see the real impact of blogging and how the way it dramatically changes people's way of life and the world of communication as recently as 4 months ago! I always wonder how on earth Bloggers have so much to talk about and I was told some bloggers actually write or post a a new blog in a matter of minutes!! Well, i don't think I can do this but really, this amazes me a lot....

Well, so much for the intro... You will hear more from me soon and hopefully I can make some new friends along the way as well...Bye and take good care of yourself!