Saturday, August 18, 2007

Another Day of Heartbreak for Investors!

PETALING JAYA: There was no solace for heartbroken investors yesterday.

Markets tumbled across the region on the last trading day of the week, with the Nikkei-225 index losing a massive 5.42% to 15,273.68, the Hang Seng Index closed 285.26 points, or 1.4%, lower at 20,387.13, the Kospi index fell 53.91 points, or 3.1%, to 1,638.07, while the Shanghai Composite Index closed down 108.87 points, or 2.28%, at 4,656.57.

In overnight trading Thursday, the Dow Jones industrial average, which was down as much as 343 points at one point, managed to rebound to close only 15.7 points lower at 12,846.

On the home front, the benchmark KL Composite Index (KLCI) plunged 16.06 points to 1,191.55 after falling 80.73 points over the previous two consecutive trading days.

Down 66.05 points shortly after the opening of the afternoon session, the KLCI bounced back from oversold territory.

Analysts and investors said the drop was again mainly due to external factors, with many Malaysian corporates continuing to be backed by strong earnings.

TA Securities chartist Stephen Soo attributed the drop in share prices on Bursa Malaysia, especially in the morning, to big “margin selling” as well as “programme selling” by US hedge funds.

“We feel that it is already overdone,” he said.

While the market would continue to be volatile, Soo said it would hold at the 1,138 and 1,078-point support levels.

It was too early to call a bear market, he said, adding: “The bull is injured but the long-term uptrend is still intact.”

An economist at a local bank-backed brokerage said the US lending woes would take some more time to unwind.

“It is not yet the end-game for a couple of weeks,” he said.

Capital market problems aside, he said the world economy remained strong.

In its April 2007 World Economic Outlook report, the International Monetary Fund had revised upwards its projections for global gross domestic product growth for 2007 and 2008 to 5.2% each from 4.9%, he said.

With global markets continuing to search for liquidity as risk-averse investors switch to cash and op out of the credit creation system, the US Federal Reserve (Fed) made an unscheduled rate cut yesterday.

Bloomberg reported that the Fed reduced the rate at which it made direct loans to banks, known as the discount rate, by 0.5 percentage point to 5.75%.

It, however, held the benchmark federal funds rate unchanged at 5.25%.

Meanwhile, the yen hit 111.6 to the greenback yesterday, its highest in nine years, largely attributed to unwinding of yen carry trades.

An economist at a local brokerage had said that the Bank of Japan (BoJ) might not intervene on the rising yen.

It is likely the BoJ is betting on domestic investors to trade down the yen by buying US dollars as happened in previous occasions of strong yen appreciation.

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