Stocks Indices Plunged on Friday

Friday, 24 October, was a dark day for most stock markets of the world. On a single day, the Straits Times Index (STI)  plunged by 8.33% to 1600.28, the lowest close since September 2003 when SARS hit this region. Citigroup, which was the most pessimistic of major financial institution analysts, forecasted a level of 1,800 points as a possibility not too long ago. This level was broken with such ease that it was unbelievable, but it happened.


From the start of this year, the STI had declined 53.7%. This said so much for the lack of confidence for the stock market. Singapore stocks on STI are now trading at single digit Price/Earning (PE) ratio of 5.09. Stock prices are really low based on PE ratio and some stocks were trading below net tangible assets


According to most newspaper analyses, the likely reason for this drastic collapse of share prices was because hedge funds have been selling out to satisfy redemption by investors and also to sell assets in their portfolios to repay loans, such as yen denominated loans (as part of unwinding yen carry trade) .


The various stock indices had fallen sharply losing between 65.1% to 31.1% from January this year.


                                24 Oct 08   2 Jan 08  Change(%)


Dow Jones (USA)           8378       13043        – 35.7

S&P 500 (USA)                876          1447          – 39.4

Nasdaq (USA)               1552         2609          – 40.5

FTSE100 (UK)                   3883        6416          – 39.4

Germany DAX               4295        7949          – 45.9

Paris CAC40                  3193         5550          – 42.4

Nikkei 225 (Japan)       7649         14691         – 47.9

Shanghai Composite  1839         5272           – 65.1

Hang Seng (HK)            12618      27560         – 54.2

Taiex (Taiwan)                4579        8323          – 44.9

Kospi (Korea)                938         1853           – 49.3

Mumbai BSESN              8701         20465        – 57.4

Australia All Ord            3831         6434          – 40.4

New Zealand NZX50     2778        4033           – 31.1

STI (Singapore)              1600         3461          – 53.7


On average, the major stock markets have declined 45% since beginning of this year. STI has gone passed this level at 53.7% reduction. Is this the bottom yet?  I fear that this is not the end as the bad news of corporate earnings for the third quarter were again hit the stock markets. There is no rationality in fire-sale of shares. My only wish is that the drop in shares will be less dramatic and not precipitous drop off the abyss we had been seeing several times since the bankruptcy of Lehman Brothers Inc on September 15.


Written on 10/25/2008 8:42 PM


Copyright © 2008, the author known as LKT in Singapore.


The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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