Web Strait’s Finance

The major stocks of US fell sharply on Friday, The Dow, S&P 500, and Nasdaq tumbled 2.4% on average. The Dow Jones industrial average down more than 280 points after some bad news emerged from the market regarding the credit crunch and the rise of US unemployment rate in July.

The fears of investors regarding the crisis of subprime mortgages going worse after American Home Mortgage (AHM 0.69 -0.75) said it was shuttering operations by laying off most of its 7,000 staffers. To make matter worse, Countrywide Financial (CFC 25.00 -1.77) showed that credit default swap spreads widened by nearly 100 basis points.

In fact, there is now too much uncertainty with regard to the credit markets and how the situation will ultimately settle. Mean while, what we can be sure is the fact in which financial institutions will continue to tighten their lending procedures. As a result, people and companies can’t borrow money as easily. Such situations will definitely affect and slow down the activities of economy.

About the Asian stocks, most of the Asian stocks suffered from this transaction week by stumbling about 2-3% of their market value. There is no denying that most of the investors are now getting worries on the US subprime mortgage crisis after the fallout of the sell-down on regional markets recently. They are now more likely to adopt a wait-and-see strategy.

Asian stocks would probably continue struggling and tumbling when the markets start their transactions on next week. This is due to the bad news emerged from US market on Friday and the negative sentiments in which surrounding the markets. In Malaysia, there will be another tough challenge for the KLCI (closed at 1335.42 on Friday) to maintain above 1300 points level after failing to advance to 1400 points by the end of July.

However, there are some market’s analysts trust that – Malaysia is a safe haven in the subprime storm. They supported their statement by the stronger growth in the domestic economy would likely be achieved with government’s policies to push up the local economy. Yep! Malaysia is a safe haven; but the condition is that US subprime mortgage crisis won’t get worse in the future. Otherwise, there is no safe haven in Malaysia even in the world’s markets.

As shown in the chart above, US is one of the largest export markets for Malaysia. It comprised about 18.8% of the total exports for Malaysia in year 2006. If US subprime mortgage crisis getting worse in the future, there must be a bad impact to the export of Malaysia. As a result, the domestic economy would be slowed down and the unemployment rate may rise too.

Most of the Asian stock markets tumbled on Friday due to the fears of global credit crunch and the US market plunge overnight(i.e. on thursday). In Malaysia, KLCI was unable to be exempted from it too by dropping -26.12(i.e. -1.89%) to 1355.38.

To make matter worse, Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. On Friday, the Dow fell 208.10, or 1.54 percent, to 13,265.47, with nearly 140 points of that loss coming in the final half-hour of trading. For the week, the index fell more than 585 points, or 4.23 percent. The week’s point decline was the worst in five years, while the percentage decline was the largest since late March 2003.

As a consequence, we expect that most of the Asian stocks will continue struggling and tumbling when the markets start their transactions on next week. Hence, investors should now be getting more cautious on their transactions that would be made next week. Although it would be now a good chance for those risks-taking investors to buy low and waiting for rebounding. However, if the Wall Street extended its steep decline on next week, the things will be going to be worse due to the market panic.

After dropping badly for several transaction days, KLCI had started to increase in last tuesday (i.e. 6th, March). Furthermore, KLCI had continued it’s rise on wednesday and the following transaction days of last week (i.e. from 7th to 9th of March). Anyway, such rising trend may not be able to last in this week.

From the graph shown above, we can see that was just a narrow increment on friday compared with those relatively much larger increments on tuesday(6-Mar-07), wednesday(7-Mar-07) and thursday(8-Mar-07). That means most of the investors had started to worry about the market’s adjustment that would happen anytime and took a wait-and-see stance for the time being. Hence, investors are advised to be more aware of this sentiment. All in all, there were most of the market analysts expect that profit taking corrections should arise in this week.

The nightmare seems still haven’t ended yet, most of the markets in Asia fell sharply on this Monday. Hong Kong - Hang Seng dropped 777.13 points (or 4.00%) to 18664.88, Japan - Nikkei 225 index fell 575.68 (or 3.34%) to 16642.25, U.S. - Dow Jones fell 120.24 (or 120.24) to 12114.10, Taiwan down 285.59 (or 3.74%) to 7344.56, and Singapore - STI fell 96.45 (or 3.13%). Besides, KLCI of Malaysia fell for sixth day to 1110.69, i.e. KLCI had dropped 53.99 (or 4.64%). By the way, KLCI was the market that had dropped worst in terms of percentages i.e. about 4.64%. The following chart shows KLCI’s performance for the latest transaction days.

As you can see from the graph above, KLCI had dropped 162.18 points within 5 transacton days. Analysts said global stocks fall reflect underling concern that the U.S. and Chinese economies will turn weaker. Besides, Japan’s yen expected to continue going high against the dollar in which may caused so called yen “carry trades” and hurt the liquidity of the market. Hence, investors are advised not to enter the stock markets now and should take a wait-and-see stance for the time being.

All in all, the market will need at least one month to see a stock rebound as the investors need time to regain their confidence against their markets.