Stock indices romped ahead

On March 2, stock indices were so low that there were fears that capitulation of stock markets would take hold. But a sigh of relief rang out as stock markets reversed course since 3 weeks ago.

 

The indices of these markets as at 26 March 2009 were:

 

                                     26.03.09 02.03.09 Change (%)   

 

Dow Jones (USA)         7924      6762         +17.1

S&P 500 (USA)                832        700         +18.8  

FTSE100 (UK)                  3925      3625        +8.2

Nikkei 225 (Japan)       8636      7280        +18.6  

Shanghai Composite  2291       2093       +9.4  

Hang Seng (HK)           14,108  12,317       +14.5  

STI (Singapore)             1758       1533       +14.6   

 

Within the span of three weeks, the jump in stock indices was quick, short and spectacular. The increase ranged from 8.2% to 18.8%.

 

Few market watchers went so far to say that we had seen the bottom of the stock market collapse. But many were still skeptical about the sustainability of this spike in stock prices.

 

The latest recovery of stock markets could be due in part to the cautious optimism projected by President Obama, Premier Wen Jiabao and Singapore Finance Minister Tharman Shanmugaratnam on the respective economies recently.

 

The impetus for the recent rise in stock prices was due to Treasury Department of America’s public-private plan to buy up US$500 billion to US$1 trillion troubled assets in order to free US banks from these toxic assets in their balance sheets. This action will kick-start the banks into lending again, at least in theory. This is yet to be seen in reality and may take several months before bank credits can flow easily again.

 

When stock markets run up so quickly, it could easily drift downwards again if there are no fresh news to make investors feel good. The economies will take another 6 to 9 months before we can see a clearer picture. So expect volatility in the stock markets. It is also easy to get caught on the wrong side of the rise and fall of the stock markets. The herd mentality was clear as the volume of trade on the Singapore stock market increased in the past 2 days. When coffee shop chatter increases among share investors, you can tell excitement is in the air and interest in shares will increase. Caution is still the order of the day in this economic climate.

 

Written on 3/27/2009 2:36 PM

 

Copyright © 2009, 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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