The Straits Times Index (STI) ended at 3,190.04 points on the last trading day of 2010. It declined 3.73 per cent from 52-week high point reached on 9 November 2010 at 3,313.61 points. This drop was due to factors pertaining to European sovereign debt crisis, slow growth in advanced economies such as the US, and concerns of inflationary pressures of emerging economies notably China.
STI started to climb at the start of this year until 20 January when it gave up gains made. By the close of last Friday (25 February), the STI was down 5.17 per cent for the year closing at 3,025.16 points.
Friday’s STI was the reversal of three days of consecutive decline of STI. STI reached a lowest point of 2,973.08 points on Thursday before recovering.
The event that led to this dismal performance was the political crisis facing the North African and Middle Eastern region. The political turmoil in Libya, which is an oil-exporting nation, pushed the oil-price for Brent Crude to surpass US$110 per barrel. Oil price increase caused jitters among investors as they feared that economic growth of nations will be derailed as a result.
Will we see further decline in STI in the coming week? One thing that we can see is that investors and funds managers were quick to bail out of equity each time an economic crisis or political crisis hit. This is due to fear still fresh in our mind from the Great Recession of 2008/09. Investors were hurt badly during that time to take any more big risk this time round.
On the positive side, if Libya situation comes to a resolution and the Middle East crisis does not escalate, the global economy could then get on with the task of growing the economy as before.
Copyright © 2011, limkimtong for Living Investment
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