The Straits Time Index (STI) fell for three straight days: 0.68% on Wednesday, 1.46% on Thursday and 1.10% today to touch 2,819 points. STI went below 2,897 points (-2.7%) reached at end of last year and far below the 52-week high 2,933 points (-3.9%) attained on 11 January 2010.
The same can be said for Hang Seng Index, Nikkei 225 Index and Shanghai Composite Index. The closing indices as at end of today were:
Hang Seng 20,726
Nikkei 225 10,590
Shanghai Composite 3,128
The Dow Jones Industrial Average declined 2.01% on Thursday to 10,389 points which sent shock wave to the regional stock markets.
The stock volatility is to be expected as investors pick up negative news coming out of major economies. In this case, China’s attempt to tighten monetary policy to cool the overheating economy and President of US indicating his administration’s intention to restrict banks from proprietary trading, fuel exit from stock markets by skittish investors.
If investors select stocks for longer term should not sellout as a knee-jerk reaction. The global economy is predicted by World Bank to grow 2.7 per cent this year. The major economies will not do anything to hurt this potential for growth after emerging from a dreadful recession last year. In addition, the US has to continue to grow the economy in order to create jobs to erase 10 per cent unemployment rate.
We have to bear in mind that it is now very difficult for stock indices to rise at spectacular rates seen last year. It is better for stock indices to rise gradually instead of by sharp jumps and then to be followed by major corrections.
Copyright © 2010, the author known as LKT in Singapore.
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