The
financial markets are always full of uncertainties. It is generally
believed that no one in the world can consistently beat the market as
the financial markets are made up of market participants that "move" in
groups. The markets only shift the momentum from one direction to the
other when the group decides. Not when the individual trader believes
the reversal should occur.
It
is believed that for any big movement in price, there must be a
fundamental news associated with it, however, the extent of the price
swing really depends on how the group think at that moment of the event.
In this article, some historical events are highlighted, and we shall
look at how the market reacted to each event.
|
Date/ Events
|
Markets
|
Duration (Beginning of the crisis date to the lowest point)
|
Change in Index（%）
|
|
2001 Sept 11
The US Twin Towers Terrorist Attack
|
S&P 500
KLCI
STI
|
2 weeks
9 weeks
2 weeks
|
-9%
-14%
-21%
|
|
2003 Feb 24
Asia SARS
|
STI
KLCI
|
3 weeks
3 weeks
|
-8%
-6%
|
|
2004 Dec 26
Indonesia Tsunami
|
JCI
KLCI
STI
|
No effect
No effect
No effect
|
-
-
-
|
|
2005 Aug 28
US Katrina Hurricane
|
S&P 500
KLCI
STI
|
No effect
No effect
No effect
|
-
-
-
|
|
2011 Mar 11
Japan Earthquake/Tsunami
|
S&P 500
KLCI
STI
|
4 trading days
1 trading day
5 trading days
|
-2.3%
-0.7%
-4.3%
|
|
2011 Aug 1
US Debt Ceiling (1)
|
S&P 500
KLCI
STI
|
8 weeks
8 weeks
8 weeks
|
-18%
-15%
-21%
|
|
2013 Jan 1
US Debt Ceiling (2)
|
S&P 500
KLCI
STI
|
No effect
5 weeks
2 weeks
|
-
-5.8%
-2.4%
|
Markets
are move by news, whether it is micro or macro news. Some news are
unheard of such as "Black Swan" incidents, others like asset bubbles
kept repeating in the markets. Examples of the historical asset bubbles
are: the Japanese asset bubble in the early 1990's; the dot com bubble
in the US in 2000; and the 2008 US subprime martgage crisis. These asset
bubbles generally impact the financial markets more severely than those
ad hoc Black Swan events. For examples: the Nikkei 225 hit 39,000
points before the crash, and until today the index can not be restored.
While the US dot com bubble took the Nasdaq 15 years to recover to its
5000 level mark.
In
the above table, it is shown that natural disasters and some ad hoc
events have short term impact on the financial markets in US, Malaysia
and Singapore as compared to historical asset bubbles (which is not
included in the table). In addition, the incidents related to the US
impacted the Malaysia and Singapore markets more than other Asian
countires' event. We saw the local market reacted more on the US debt
ceiling and the terrorist attack incidents.
Another
finding from the above table is that: the market will analyse the
relavance of the event to our own country. For example, the United
States is Malaysia important trading partner, hence, major incidents
from the US will impact the local stock market negatively. The extent of
the negative sentiments could last for 2 to 9 weeks and the index fell
not more than 15% for the KLCI.
How about our own local disastrous news? How would that affect our stock market?
In
March 2014, MAS encountered a fatal commercial air accident that climed
hundreds of casualties. At the event, the MAS shares plummeted. Several
months later, in July, another MAS aircraft crashed which claimed more
lives, but the MAS shares did not experience the same kind of decline.
This shows that when things happened twice, it will not cause much havoc
in stock market as people already had the experience, just as the US
debt ceiling crisis.
How
about oil prices? Yes, Malaysia is affected by the plunging of crude
oil prices as we are a net exporter of crude oil. When the crude oil
price crashed in September 2014, followed by ringgit depreciation, this
is no more an ad hoc incident, but more of a fundamental impact to our
economy. However, whether our economy can ride through these hurdles
depends on 3 things: the interest rates, the housing prices and the
liquidity in the financial systems. Since we know that market moves in
groups, and investors confidence will greatly affect the sentiments of
the market. In order to restore the market confidence, we must first
take care of the "feelings" of investors/ market participants. In
general, I believe investors want to see low interest rates, stable
housing prices, and healthy liquidity in our financial system.
http://paulineseconomicsforum.blogspot.com/
