Web Strait’s Finance

Last week must be one of the most horrible weeks to those stocks investors around the world. All of the main indexes for China, Hong Kong, Japan, United States, Europe and Southeast Asia plunged into darkness. Most of the Asia markets continued to be weak on Friday’s close. A summary of Friday’s close in Asia is as follows:

• Nikkei - down 235.58 points, -1.35%
• Taiwan - down 7.90 points, -0.1%
• Shanghai - up 34.34 points, +1.23%
• Hang Seng - up 95.41 points, +0.49%
• STI - down 13.84 points, -0.45%
• KLCI - down 16.23 points, -1.37%

Within the 5 transaction days in last week, about RM101.37 billions of wealth from KLSE had gone at a glance. In overall, KLCI had droped 120.17 points in one week time! And KLSE ends the whole week’s transactions with KLCI closed at 1164.68 on friday. There following are several main reasons that had caused the KLCI dropped over last week:

• Investors worried about China’s economic boom in which would badly affect the global economy.
• There were concerns about actions likely to be taken by China to curb its hot economy & money inflows.
• Subsequently, the Stocks in China dropped drastically by 9%.
• This had caused the anxiety among the investors in the regional markets like Hong Kong, Japan and Southeast Asia. As a result, all of these markets dropped dracstically too.
• Such news had badly affected the stock markets of United States and Europes in which starts their transaction day after Asia. As a result, all of these markets dropped dracstically too.
• Other than the above reasons, KLCI had also been affected by some local sentiments. Some investors consider KLSE had reached “overheat” or “overbought” level. Such situation had been more obvious after KLSE unbelievably breaks several new records(i.e. highest transactions volume, KLCI reached the highest level in 13years & etc.) after Chinese New Year’s holiday(i.e. from 21st - 23rd, February).
• “T+3″ sentiments in which brought to speculations.

The Central Bank of Thailand has just announced that the Capital Control Policy will be adopted to prevent the foreign investors from withdrawing their capitals out of Thailand within the 1st year of investments. As an result, the Stock Exchange of Thailand Index dropped more than 10% just after the announcement. Furthermore, such decision had also given a very bad impact to most of the Asian stocks, including KLSE. KLCI had dropped 26.22 or 2.42% to 1055.38 (Note: till 3.36pm). Anyway, KLCI had adjusted afterward and closed at 1060.36 (i.e. dropped 21.24 on 19 Dec 2006).

Capital control is the monetary policy device that a country government (ie Sovereign power) uses to regulate the flow of investment-oriented money into and out of a country or currency.

KLCI had closed higher on this Tuesday and Wednesday, rebounding after a correction on Monday. The Composite Index rose 0.7 % or 7.65 points on Wednesday to 1043.81 in heavy volume of 1.3 billion shares.

The CEO of Bursa Saham Malaysia Bhd., Yusli said that KLCI should be getting higher in these few weeks (Even there would be some profit-taking activities). This is because the foreign investors have recently returned to the market of Malaysia. From the statistics recorded, they had mainly invested in the blue-chips. Hence, those companies should continue to perform well in terms of the company’s profits, in order to strengthen their investors’ confidence and bring the KLCI to another higher stage.

On the other hand, most of the Asian stocks were closed higher on this Wednesday. Manila had rose 1.1% to a 9-year high on heavy trading, to finish at 2,855.23. Furthermore, the stocks from Tokyo, Hong Kong, Seoul, and Singapore had also risen more than 1%.

Last week, KLCI performed quite well. There were 4 out of 5 transaction days in which the daily transaction volume exceeded 1 billion. Furthermore, KLCI successfully touched 1030-point barrier on last tuesday. And hence reached the highest level ever achieved in the recent 9 years. Finally, KLCI closed at 1040.79-point on last friday, 17 Nov 2006. All in all, KLCI had increased 18.49-point or 1.81% within the whole week. The total volume of transactions for the whole week reached 5.41 billion.

Nevertheless, there were most of the market analysts expect that profit taking corrections should arise within this week. Hence, investors are advised to be more aware in investing any stock. Because technically KLCI has seriously exceeded the overbought levels. Furthermore, there is a high posibility for KLCI to drop anytime. Hence, it’s not a bad idea for those investors who chose to enter the stock market after consolidation and pullback.