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.
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