The Dow Jones Industrial Average plunged 666 points on Friday.
The 10-year Treasury yield jumped to a four-year high (2.84%) after a better-than-expected job report reflected rising wages. Yields also got a boost from higher-than-expected consumer confidence numbers as investors are concerned the Federal Reserve may reduce its monetary stimulus and increase interest rates more aggressively as the economy continues to strengthen.
Based on the last 25 years, there are 17 times of big dropped, not including Friday's decline. Each of the plunge, the benchmark market index tend to rebound the next day and the next week. However, please noted past performance does not always equal future returns and if interest rates continue to shoot higher, this sell-off could buck historical trends and keep going.
In the other side, what will be the impact on Malaysia FBMKLCI?
My opinion, Malaysia market will be benefited the most.
Let's us put it like this. If the foreign funds know the Dow Jones and other benchmark market indexes going to take a dive due to their bond yield increasing, why there are huge foreign funds buying and entering into our KLCI recently? According to the Bursa Malaysia trading participants statistic, foreign funds were the net buyer for 7 weeks out of 8 weeks. By the way, there is an exception as well, if those Foreign funds statistic is fake.
Secondly, foreign investors and foreign fund managers will shift their funds from US market to emerging market, South East Asia countries especially Malaysia. There are few reasons;
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Ringgit performance
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Index performance compared to other regional countries
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General election
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Oil price performance
In short, I foresee our KLCI likely to break new high in near term.
Disclaimer: Not a buy call or sell call, it is just for educational purpose. Buy or sell at your own risk.
