KLSE Stock Market Performance in 2008

Stock Market Performance in 2008


Riding on the strong local stock market performance of the last quarter of 2007, the Kuala Lumpur Composite Index (“KLCI”) quickly reached its record high of 1,516.2 points on the 11 January 2008. However, from that point onwards, the KLCI saw a steady decline as concerns over the health of the US financial markets and its economy in general dampened investor appetites. Then, on the 10 March 2008, the KLCI plunged 9.5% to 1,157.4 points as a reaction to the results of the 12th General Elections. The KLCI subsequently recovered to end March 2008 at 1,247.5 points, down 13.7% for the
1st quarter of 2008.

The recovery which began in mid-March lasted until hitting the 2nd quarter high of 1,300.7 on the 16 May 2008. At that point, fueled by the effects of rising commodity prices, the stock market started weakening. Inflation proved to be a very real concern as soaring commodity prices resulted in year-on-year inflation doubling in the month of June. As a result the KLCI closed the quarter at 1,186.6 points.

Bearish market sentiments persisted throughout the second half of 2008. Inflation concerns remained unalleviated until September. Simultaneously, many European economies announced 2nd quarter contractions. Finally, in September, the failure of several large financial institutions in the US sent shockwaves throughout the global financial markets. On this note, the KLCI ended the 3rd quarter of 2008 at 1,018.7 points, down 30% from the beginning of the year.

In the 4th quarter, the KLCI hit the year’s low on the 29 October 2008, closing at 829.4 points as the economies of the Eurozone and Japan enter a technical recession, and as the US records a quarter-on-quarter Gross Domestic Product (“GDP”) contraction. Locally, the Malaysian economy has seen its GDP contract by 11% from the previous quarter.

Following interest rate cuts and stimulus packages by various governments, including Malaysia, global and regional equity markets began to recover. It is on this note that the KLCI ended the year at 876.8 points, a total loss of 568.2 points or 39% from the beginning of the year.

On the outlook for the stock market in 2009, market sentiments are expected to remain bearish for at least the first half of the year as the major global economies struggle to escape the grip of recession. Malaysia has not been spared from this crisis. Rising unemployment along with the low GDP growth forecasted for the year will put further downward pressure on equity prices. However, there are signs that the global economic downturn may be bottoming-out. If global and/or regional economies succeed in turning around, we may well see the KLCI rebounding by the end of 2009.

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