Ten-year cycle of market crashes?

In this article, we look at three stock market crashes from the recent market crash to those in 1987/8 and 1997/8 

Q: Are we in the 10-year stock market cycle, pending a big stock market crash? 

 The market crash in 2007 

The recent heavy sell-down on the bond and stock markets caught a lot of retail and institutional investors by surprise. What appeared to be a haven in investment like the bond market was still subject to panic selling from institutional investors.  We believe the crash in the bond 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. 

The plummet in our stock market was mainly due to the fear of sharp drops in the US, Hong Kong, Singapore, South Korea and Japan markets.  Even though our banking institutions were not really affected by the US subprime issues, the international contagion and fear of more crashes, margin calls and panic selling from retailers caused heavy losses on Bursa Malaysia.   Nevertheless, the magnitude of our losses was far less than those in the regional markets. 

The 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.  In Malaysia, the KL Composite Index (KLCI) tumbled by 12.4% on Black Monday. As a result of the overnight crash in US, the KLCI plunged another 15.7% the next trading day. 

The 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. In Malaysia, the KLCI tumbled from 1,231 points in the beginning of 1997 to the low of 262 on Sept 1, 1998, representing a total percentage drop of 78.7%. 

Comparing the three market crashes, the KLCI suffered its biggest daily drop of 21.5% on Sept 8, 1998. The crashes in 1997/8 and 1987/8 were also far more severe than our recent market crash.  We are not too sure whether we have seen the worst of the crash in 2007. However, the sell-down has caused a big disruption in our uptrend momentum. It appears to be quite difficult for the KLCI to touch the recent peak of 1,392 again.  

Any market rebounds may prompt fund managers to continue offloading their equity exposure. Most of big losses in 1997/8 and 1987/8 happened in October.  As we can only know the actual exposure of the subprime issues for most of the US financial institutions when they report their third quarter results in early October, we are expecting some market volatility in that month. 

 Ooi Kok Hwa is a licensed investment adviser and managing partner of MRR Consulting. 

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1. First, use a pencil or word processor (I prefer the latter because it's faster) to type, in complete sentences, any fact you think might appear on the test. Use short sentences because they're easier to remember.

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3. Look at the first sentence in your notes and read it out loud. Then, close your eyes and say the sentence without looking at it.

4. Repeat the step above, this time with the first two sentences.

5. Next, try it with three sentences. Then four. Repeat until you have memorized every sentence in your notes.

Top 5 super-obvious, ways to immediately improve your life.

Reduce noise - We all have innumerable inboxes, interruptions, and distractions that are part of work and life — you can't change that. What you can do is get more hard-nosed about the elective diversions that you invite into your world. Cancel a subscription for a magazine you never read or sign off an annoying mailing list. Needles get easier to find when you aren't constantly adding new hay to the stack.

Write things down - Ever find a piece of paper in your office with seven digits on it? You know it's a phone number, but whose? Get ruthless about jotting down ephemeral information if you'll need to recall it later. Remember that your brain is a creative organ with limitless creative possibilities — but it makes a really crummy whiteboard.

Focus on action - My favorite productivity book, "Getting Things Done" highlights how anything you want to do in life eventually comes down to intentional physical activity — even if it's something as mundane as "take out trash" and "call Mom." Learn the habit of planning your world around action verbs rather than fuzzy nouns. "Implement Strategy" is not a task; it's a project. "Call Jim about strategy" is a very do-able "next action" that keeps the ball in motion.

Get out of your inbox - Many of us are habituated to living out of our email inbox, voicemail, and the other "in baskets" of our lives. Instead, try to set aside regular, periodic times when you trawl for the new content in your life — then get back to work! Inboxes are delivery systems, not workspaces. The real work is happening in your brain and practically every other place that's not an inbox. Stop allowing yourself to be brow-beaten by the latest, loudest, or most dramatic item that's landed in your world.

Get pickier - You are the sole person in your life who gets to decide where your time and attention can go.

Take that responsibility seriously by not wasting time on junk. You know in your heart what's really important to you — does the current direction of your time and attention reflect that? Is "kid hugging" time where it should be in proportion to "Blackberry checking" time? Be mindful at the highest level about where you focus your energy, and always strive not to squander it on undeserving activities.

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Digi deal

The much-talked-about sell down by parent company Telenor ASA of its stake in DiGi could be a win-win deal just biding its time. The attention on this development is also on the rise with the latest comment from the Minister of Energy, Water and Communications regarding the non-extension of Telenor's compliance with the foreign ownership regulations. In the face of corrections in the KLCI, market conditions are ideal for encouraging investment and for companies to take profit. It seems like the right time for DiGi to open its doors to a new party to enter into an equity partnership. "Even if any exchange is not effected at current prices, the final agreed price would still fetch a handsome profit," concurred MIDF research analyst Sharath Somasundaram. "And based on current sentiment, there is good reason to feel that the right buyer can afford the valuations to offer a strong price in return of owning a slice of a blue-chip company.Furthermore, the slew of de-listings have given rise to huge amounts of funds floating among cash-rich investors looking for the just the right target to inject their money into. As the only public listed telco in Malaysia, the odds are in DiGi's favour. Even if Telenor does not favour a direct sale of shares, other options are available such as a well-timed, new shares issue or a split. Selling a whole 11% - 12% slice to one investor could mean the new party wanting to 'lend' its creative direction into management, which may disrupt current smooth business flow," explained Sharath. Yet the stake can be pared into smaller pieces and made available to many minority investors.

Friday Market intervention

We have seen a brilliant market intervention by our Malaysia Government on Friday's second trading session. A massive selling down of share prices particularly aimed at KLCI component shares must be an institutional selling. Some funds must have joined the selling force as short selling. We don't want funds to get hurt but if you don't impose substantial losses upon the funds, their preying movement will not be halted. We have a very very very simple way to burn the funds that have joined this afternoon's selling down action : to burn the funds using T+3.

As Fund Managers are eligible to move share prices, to do short selling, hence Fund Managers are the only party that can profit from the falling of share price. But bad loans in banking sector may increase and spread if share price does fall over 80% within 2 weeks' time. We urge our Malaysia Government to halt the preying movement of funds by imposing losses upon them.

The massive sell down occurred in this Friday afternoon before 3:30 pm. Our Malaysia Government intervened the market from 3:15 pm. We see our Malaysia Government not only buy up the share prices, but also in huge volume. These shares SHOULD never be lent to any fund for a short while. Our Malaysia Government MUST not buy up any share price next week for no reason. This is utmost important, therefore we reiterate it in capital letter below :

OUR MALAYSIA GOVERNMENT MUST NOT BUY UP ANY SHARE PRICE NEXT WEEK FOR NO REASON.

On next Monday, those funds may expect our Government to buy up shares for them to sell down. If our Government does nothing instead, those funds may start another round of selling down the share price without a massive volume. Notice here, the selling down is NOT accompanied by massive volume. Then comes to Tuesday next week, we expect the trading volume may shrink and share price movement narrowed. Then comes to Wednesday, i.e. T+3, the final day to transact shares. Those funds that joined Friday's selling down movement may start their last selling down attempt. Our Government should prepare to intervene the market at Wednesday opening, with the intention only to retain the share prices. Those funds must buy up the shares around 11 am, we strongly suggest our Government to follow suit. Both our Government and those funds are chasing after the share price. This is a rebound that filled with blood !! The blood of those funds that joined the sell down on this Friday afternoon. Just keeping the share price at the place where it belongs without much push up movement. Those funds will face heavy losses if our Government makes little movement. The day after Wednesday i.e. Thursday is another T+3 for those funds for their action on Monday, another losses imposed upon those funds !!!!!!!!!

The only way to stop Fund Managers to hurt us, to prey on retail investors is to impose losses upon them using Government power. Only then the Fund Managers will cool down and try to move the share prices from the level of 1180 to 1300.

Barisan National is planning a general election soon, if the Fund Managers movement cannot be halted, all of us will suffer. We never declare that we support Barisan National, but as we are all sitting on the same boat, we have no other alternatives but to propose useful suggestions that could consolidate the share market prices. We have many talented, sound and experienced local funds. Now if the Government does not make severe mistakes, the share market volatility can be cool down within a week's time.

This is the method HK Government used in battle the market speculators in August 1998. In August 1998, HK Government declared a change of T+5 to T+2 with effect immediately before they rescue the market. We don't have to alter any figure in T+3, simply that our Government does not make severe mistake in pushing up the share prices too early. Malaysia Government MUST act in the same direction with those funds when they are forced to buy up the share prices, and retain the share prices during their attempt to sell down the share prices.

Remember one very important truth : Don't buy up the share prices unless the funds are forced to do short covering.

SBL, Fund Manager, Share Price Movement

The following Q&A's are our own views; they are focus upon SBL, Fund Manager, Share Price Movement.

Q&A 01 : What are the synonyms of Stock Borrowing-and-Lending (SBL)?

Ans : SBL = Short Selling = Off-Market Trading.

Q&A 02 : Which party is legitimated to do SBL ?

Ans : Fund Managers are the only legitimate party to do SBL. In another words, Fund Managers can do the short selling; Fund Managers are the only players for Off-Market trading.

May be you would like to argue that Bursa Malaysia does not have Off-Market. Well a very close-to Off-Market status does exist or otherwise Bursa Malaysia cannot function without Off-Market.

Q&A 03 : How many parties are there in a share market ?

Ans : Two. They are Retail Traders and Fund Managers.

This is the most important question

Q&A 04 :Where did the shares go after retail traders bought in shares from the share market ?

Ans : The shares that retail trades bought in MUST go into the custodian account of Fund Managers. Retail Traders are funding Fund Managers to short sell the shares bought by retail traders to profit Fund Managers. This is the name of the game.

We believe most retail traders never realize that they are helping Fund Managers to prey on their share prices.

Q&A 05 : How many markets are in Bursa Malaysia for trading shares ?

Ans : Three. They are the Primary Market for trading IPO, Secondary Market for trading issued shares, and Off-Market for Fund Managers.

Q&A 06 : The structure of secondary market is designed for whom ?

Ans : The structure of secondary market is designed for Retail Traders only. As you can see, whenever there is a rise in share price, it means buying; whenever there is a fall in share price, it means selling. These are all from the stand-point of Retail Traders, not the Fund Managers.

Q&A 07 : Who is legitimated to move the share price ?

Ans : Fund Managers have the license to move share prices, but they have to report the movement to Bursa Malaysia and Security Commission (SC). Share price is just like the price tag of any other ordinary goods, only that share is tradable in share market alone. Large movement of share price is prohibited and requires explanation.

You may already know the answer of the above Q&A's. But if you don't, you are really a retail trader !!

Here is another important hierarchy of share trading information, where retail traders are always put themselves in the unfavorable situation of this information imbalance :

The most powerful decider for share price movement : Insiders;

The second most powerful decider foe share price movement : Fund Managers in Off-Market;

The third most powerful decider for share price movement : Technical Analysis.

Technical Analysis is considered more powerful in deciding share price movement than other analysis such as Fundamental Analysis simply because Technical Analysis is much more closer to revealing share price movement.

We like to use smaller values for Technical Analysis charts to increase its volatility. Even though Technical Analysis charts cannot reflect 100% of Fund Managers intentions, but Technical Analysis charts in CandleStick form can give you some hints at what price you should buy-in, where the Fund Managers have no more interest to sell down the share price.

Angin Yang sama kita Layari

Dear friends,

Pernah dengar tak istilah ini: "The same wind blows on all of us... it's how we set our sail" (Angin yang sama meniup kita semua... apa yang membezakan adalah bagaimana kita melayarinya)

Sekiranya anda memahami istilah ini, anda memahami istilah sebenar kejayaan. Apa yang membezakan mereka yang berjaya dan mereka yang tidak berjaya? Kesemuanya adalah keputusan pada diri sendiri.

1. Anda bertanggungjawab atas hidup anda sendiri dan anda tidak boleh mengubahkan diri anda selagi anda menerima tanggungjawab itu.

2. Anda juga bertanggungjawab dengan siapa atau apa yang mendekati minda anda. Mendekati orang yang salah atau kumpulan yang salah boleh berjangkit! Kadang kala ianya berat, tetapi ianya adalah tanggungjawab anda.