Thursday, March 01, 2007

The 1994 Crashed: Will history repeat itself???

KLCI 1994 Market Crashed (Click on the chart to enlarge)

  • Rallied from 722.07 on 28 Jun1993 to 1332.04 on 5 Jan 1994.
  • Drop over 285.46 point in 6 Days to 1005.94 on 13 Jan 1994.
  • Considered stabilized after 2 weeks.
  • Settled at 967 on 22 March 1994.

The 1994 Case:

Share prices on KLSE started the New Year with a bang on Jan 3, 1994. The first three trading sessions took the KLSE Composite Index to its all-time intra-day record high at 1,332.04 points on Jan 5.

A burst of selling in blue-chip and index-linked component stocks sent the KLSE CI breaching first the 1,300 barrier and then the 1,200 support level. The KLSE CI hit a retracement low at 1,180.96 points on Jan 7, giving a total loss of 151.08 points or 11.34 per cent, from its all-time intra-day record high of 1,332.04 points.

Regional bourses retreated on a wave of heavy selling which pushed share prices, particularly bluechip and index-linked stocks, broadly lower. This sharp retracement was caused supposedly by Japanese funds reducing their exposure in regional stock markets. Their latest portfolio adjustment exercises had indirectly affected the local market sentiment.

Chartwise, the KLSE CI staged a decisive penetration of the 1,300 barrier earlier. It went on to record its all-time intra-day and closing record highs on Jan 5. The KLSE CI closed off low at 1,190.73 points on Jan 7.

From the market behaviour of the 1994 sharp falls, selected blue chip- and index-linked counters came under strong selling presssure. It was these same counters that propelled the KLSE CI to its all-time intra-day record high at 1,332.04 points on Jan 5. Was it a classic case of the interplay of the fear and confidence with the context of the overall market sentiment?

At that time, it was also perceived as healthy correction for the short to intermediate- term perspectives. However, in reality it was not so healthy after all.

And some did even predicted that the KLCI can shoot to 2,100 points (..heh heh Gheee Hubba-hubba. Woo hoo!)

"Publication : Business Times

Date : 10/01/1994
Page Number : 07
Headline : Chartist: KLCI set to strike 2,100 in 2nd half

THE Kuala Lumpur Composite Index (KLCI) is technically projected to strike the 2,100-point range in the second half of this year and with the present bull run charging into 1995, financial chartist SN Lock said yesterday. He told a half-day seminar on the "Malaysian Stock Market Outlook for 1994" in Kuala Lumpur that there is still room for further upward appreciation this year, given the influx of US pension funds expected to flow into the Malaysian stock market.

Lock, who is also the investment manager of Sabah Shipyard Bhd, said the index is not likely to fall below 1,100 points during the current consolidation period. He is optimistic that the stock market will rebound by the middle of this week and thereafter enter into another bull run which should persist until 1995, with intermittent corrections, given the current bullish undertone of the market. "

The Current Situation

The KLCI tanked 2.81% to 1,237.08 points and had the biggest intraday fall since 1994 on two main reasons:
i) rumours that China will impose capital controls;
ii) Former US Federal Reserve Chairman Alan Greenspan's comments that the US will head into a recession by year-end.

The possibility of China imposing capital controls is real, since China's stock market indices have risen at breakneck speed in the past two years. For example, Shenzen Composite Index rose 97% in 2006 and has risen a further 28% year-to-date, fuelled mostly by foreign capital inflows. The possibility of the US heading into a recession is also real, as Greenspan rightly highlighted, with stabilizing profit margins of US corporations signaling the end of a growth cycle historically.



Kia said...

tauke glad u are back safe and sound...

Anonymous said...

Brother.....apa sudah jadi dengan bursa hari ni ? Hari ni punya morning session dah terguling 50 point. Ramai client terbakar bontot. Hancussss