KLSE STOCK MARKET PERFORMANCE IN 2008

STOCK MARKET PERFORMANCE IN 2008

Q1, 2008
The strong performance of the local stock market in the fourth quarter of 2007 continued to rally into 2008 with the Kuala Lumpur Composite Index (KLCI) touching a series of record highs before closing at the peak of 1,516.22 points on 11 January 2008. It had climbed 4.9% to emerge as the top performer in Asia. However, a sell down in regional and global market due to the lingering fears of a US triggered global recession with its origins in the US subprime and credit crunch problems, brought the KLCI to lower close of 1,357.40 points as at the end of February 2008.

Undoubtedly the biggest news in 2008 was the 12th general election held on 8 March 2008. With the ruling Barisan Nasional returned to power with only a simple majority and a total of five states falling into the opposition rule, the market reacted extremely negatively. The KLCI plunged by a hefty 123.1 points or 9.5% on 10 March 2008 on a heavy volume of 1.18 billion shares traded,recording its biggest daily losses. The recovery of regional and global equity markets, however helped to mitigate the situation. KLCI managed to close higher at 1,247.52 points as at the end of March 2008, down 13.7% for the first quarter of 2008.

Q2, 2008
While the rise was in line with the recovery of regional and global equity, it was still 1.3% below the pre-general election closed of 1,296.33 points on 7 March 2008. The KLCI continued to edge higher in early May 2008, reaching a second quarter high of 1,300.67 points on 16 May 2008. In mid May till end of June 2008, it came under further selling pressure due to many factors, led by cost push inflationary pressure from higher petrol prices and increase in electricity tariffs that dampened economic growth. Consequently, the KLCI slipped into an extended period of bearish sentiment and ended the first half of 2008 at 1,186.57 points, a drop of 258.80 points or by 17.9%.

Q3, 2008
The downward trend continued into the third quarter of 2008 amidst the contagion fears following concerns of the financial crisis in the US and Europe. Much of the weakness in the global equity markets was caused by the uncertainties over the health of US economy. The string of highly published failures of large financial institutions in the US sent shock waves through the global financial markets and further aggravated the market sentiments. The KLCI fell below 1,000 points on 18 September 2008 to close at 991.66 points. Although it recovered slightly to record at 1,018.08 points at the close of third quarter, it shed 14.1% for the quarter.

Q4, 2008
At the start of the fourth quarter, KLCI retreated further in tandem with the sharp fall of the global and regional equity markets. Despite the corrective measures introduced by Governments and Central Banks worldwide to cut interest rate and inject massive liquidity into the financial system, the dysfunctional global credit market continued to generate fears of global recession. The KLCI reacted adversely falling into a four year low of 829.41 points on 29 October 2008. It however, recovered when US Federal reserve cut interest rate by 50 basis points to 1.0% on 29 October 2008.

The KLCI continued to recover following the US and regional equity market and closed the fourth quarter at 876.75 points, recording again of 5.7% from 829.41 points on 29 October 2008.

The year 2008 was indeed a roller coaster year. The outlook for the stock market in 2009 remains challenging. Fears of a global recession will continue to pervade in the first half of 2009. The US economic downturn along with falling commodity and oil prices is expected to have a negative effect on Malaysia’s export. Combined with a lower GDP growth outlook for 2009, the current consensus is only for a 3.6% upside for the KLCI.


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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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