Stock Indices Rallied

The last time I wrote about stock indices rally was on 3 April. A month later, the major stock indices rallied again for the week ending 8 May. Since last Friday, all indices rose above the 24 October 2008 low levels:


                                    08.05.09    24.10.08         Change(%)


Dow Jones (USA)          8574         8378               +2.3

S&P 500 (USA)                929           876                 +6.0

FTSE100 (UK)                  4462         3883               +14.9 

Nikkei 225 (Japan)       9432         7649               +23.3

Shanghai Composite  2625         1839                +42.7

Hang Seng (HK)           17389       12618              +37.8

STI (Singapore)             2238         1600               +39.8


Confidence returned to market players, flushed with cash to invest. They believed that the bottom in the stock markets has been reached and the only way is up for the stock indices from now on. They saw signs of green shoots of recovery in the US. China’s manufacturing has started to recover with the four trillion yuan stimulus package starting to impact growth.


How far can the stock rally go?


If we compare the current indices with 2 January 2008 figures, when US recession started to take hold and before any steep declines over 2008, the current indices are about thirty over per cent away.


                                   08.05.09    02.01.08  Difference(%)


Dow Jones (USA)          8574        13043             -34.2

S&P 500 (USA)               929            1447             -35.7

FTSE100 (UK)                  4462          6416             -30.4

Nikkei 225 (Japan)       9432         14691             -35.7

Shanghai Composite  2625          5272              -50.2

Hang Seng (HK)           17389        27560             -36.9

STI (Singapore)             2238          3461              -35.3


Is this when the stock indices rally took a breather from recent gains?


The economic fundamentals of the global economies have not changed significantly. The International Monetary Fund (IMF) projected the economic growth for Asia will shrink this year when compared with last year. Notably the economies with negative growth in 2009 were:


                        Year-on-year growth(%)

Singapore                -10.0

Taiwan                     -7.5

Japan                       -6.2

Hong Kong              -4.5

South Korea             -4.0

Malaysia                   -3.5

Thailand                    -3.0

New Zealand            -2.0

Australia                   -1.4


China will have growth of only 6.5%, while India is projected to grow only 4.5%. Both countries will show slower growth when compared with past three years. (Source: “S’pore economy may shrink 10%: IMF”, The Straits Times, 7 May 2009)


If this is being the case, how much more can the stocks rally or will there be a correction?


Written on 5/9/2009 6:20 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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