Investors in equities are running for cover

The inevitable happened. The warning signs were there that the stock markets were expensive. The former Federal Reserve Board Chairperson, Janet Yellen said that the stock market valuation was high.

The Straits Times Index (STI) reached a high of 3,592.08 points on 23 January 2018. It had declined to 3,358.03 points at lunch time today. That was a whopping decline of 6.5% and brought the STI to negative territory since the end of last year. The gains in January were totally wiped off and worse still it is now negative 1.3% from end 2017.

The stock markets rout started from US stock market since last Friday. The Dow Jones Industrial index dropped 4.60% last night. This sent investors running for cover.

Stock Index 29 Dec 2017 6 Feb 2018

(12.30 pm)

Change
STI 3,402.92 3,358.03 – 1.3%
Dow Jones 24,719.22 24,345.75 – 1.5%
Nikkei 225 (Japan) 22,764.94 21,218.96 – 6.8%
Hang Seng (HK) 29,919.15 30,651.31 +2.4%

Those investors who borrow to invest on margin would be badly affected since the downward pressure on valuation of their share portfolios would trigger margin calls by the lenders.

When the going is good, investors chase for even higher prices. When the market turns abruptly, no one wants to hold on to rapidly declining share prices. When the music stops, no one wants to have no chair to sit on in a musical chair game.

Copyright © 2018, limkimtong for Living Investment

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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