Well, personally, I think so. I know I am not a guru in this area but personally, I would like to share what I think. Just look at the simple chart (see below, click to enlarge), most regional stock markets are plunging almost 20% by now, some already passed that points. January 2008 is the worst month as you can see from this simple chart.
Just barely few months ago, although US has taken the lead to come out with some 'rescue' packages but it seem like all these measures are 'sealing up' the leaking pipes and allow the inherent problems to shift to another 'leaking' areas and may be worst to transfer to a 'bigger' leaking hole somewhere before it got too much 'pressure' and 'burst' the pipe and cause a bigger market crash.
Sound pessimistic? I do agree but unless the whole world beside the IMF works together and 'seal' all this 'leaking' or inherent problems otherwise we cannot depend on FED rate cut alone forever. I don't doubt FED rate cut will 'ease' the situation but for how long? Another FED rate cut announcement to 'ease' it when next stock market problems arises and ignore the inherent problems like crude oil crisis, US currency depreciation, global inflations ... and eventually from US recession to global recession. Hopefully not.
We can see the recent heavy sell-down on the stock markets must have caught a lot of retail and institutional investors by surprise despite FED rate cut and US$140/150 billion rescue plan. What appeared to be a haven in investment like the stock market was still subject to panic selling from institutional investors/funds Managers.
I personally believed that the market heading south in the stock market was mainly due to the withdrawal of some foreign funds. As a result of tight liquidity, unwinding of yen carry trade and potential high losses in some hedge funds, some foreign funds might have been forced to withdraw their investments from the Asia-Pacific market too.
I think the plummet in global stock market was mainly due to the fear of sharp drops in the US.
Although our banking institutions were not really affected by the US sub prime issues, the international contagion and fear of more crashes, fear of uncertainties ahead, margin calls and panic selling from retailers caused heavy losses on regional stock markets.
Let recap what have happened in the last market crash 10 and 20 years ago.Scenario of market crash in 1987/8
The market crash in October 1987 was partly attributed to strong market performance of most markets during the first nine months of the year. For example, the US market experienced more than 30% increase during the nine-month period.
However, from Oct 12 to 16, the Dow Index tumbled by 9.5%. On Black Monday of Oct 19, it plunged 22.6%, or 508 points, within a day. It was the largest single fall since 1929, in both absolute and percentage terms.
Scenario of market crash in 1997/8
The Asian stock market crash of 1997/98 began with a currency crisis in July in Thailand and quickly spread to neighbouring nations. One by one, overheated markets crashed in Thailand, Indonesia, Malaysia, the Philippines, Hong Kong, Singapore, Taiwan and South Korea. This was mostly due to the rapid industrialisation in these countries.
The US market was affected by the turmoil in Asia. Its share prices began to collapse at the beginning of October 1997. On Oct 27, the Dow Index tumbled by 554 points, or 7.2%, within a day. However, it recovered by recording a rise of 337 points the next day.
I am not very sure whether we have seen the worst of the crash in 2008. However, the sell-down has definitely caused a big disruption in our uptrend momentum. It appears to be quite unlikely for the regional stocks to reach their recent height just about one month ago.
Any market rebounds may prompt fund managers to continue offloading their equity exposure.
Personally, as for now, I am expecting some market volatility in the coming month if US just keep on playing with FED cut. Let hope the whole world works together to resolve this problems.
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