MOST stock markets around the world continued to rally yesterday on the belief that war in Iraq would break out at any moment, removing the element of uncertainty that has for months eroded investor sentiment.
With diplomacy being given a final throw of the dice by Britain and the United States, markets are sensing that the huge relief rally could also continue should the crisis be ended peacefully.
Sentiment would improve when war starts. Markets will go up but investors will then look at growth assumptions and the impact of expensive oil on economies worldwide,'' said the head of research at a local brokerage.
Stocks in the US staged a powerful bear market rally on Thursday on a lot of short-covering on perceptions that a settlement of the Iraq crisis is just around the corner. The Dow Jones Industrial Average rose for a second day in succession, gaining 270 points or 3.6% to 7,822, its best showing in five months. The tech-laden Nasdaq, too, gained ground, closing 62 points or 4.8% higher at 1,341.
Stock markets in Europe also rallied strongly on Thursday with the London FTSE posting its biggest one-day gain in 15 years. Germany's DAX soared nearly 7% and France's CAC-40 jumped over 6%.
At press time yesterday, strong follow-through buying was seen in Europe for the second straight day.
As equities rose, oil and gold, which had spiked up strongly in recent weeks, lost ground.
Over the past two days, Brent crude has fallen from around US$34 per barrel to US$31, and gold has slipped from US$345 an ounce to US$334.
Investors' reaction in Asia yesterday to the latest political and military developments vis-a-vis Iraq was, however, more muted than what was seen in the US and Europe.
Tokyo's Nikkei 225 stock average gained 1.7% to 8,002 points and Hong Kong's Hang Seng Index rose 1.9% to 8,956. Seoul's Kospi rose 1.1% to 537, Singapore's Straits Times Index climbed 1.6% to 1,250, and Sydney's All Ordinaries advanced 1.9% to 2,724.
The biggest gainer among the major stock markets in Asia was Taipei, whose weighted index gained 2.2% to 4,476 points.
On the local front, the KLSE Composite Index (CI) rose just slightly more than one point to 628. Analysts expect the local bourse and those in Asia to lag a broad market rally in the US and Europe, as major investors are seen likely to heap money into the major Organisation for Economic Development and Cooperation (OECD) nations first before anywhere else as their markets had declined more severely over the past three months.
The KLSE is expected to be re-rated after markets in the US and Europe.
Analysts said investors, by making aggressive purchases of equities over the past two days, may be trying to get into the market at its lows ahead of any war or settlement of the Iraq crisis.
The jury is out, however, on whether the best time to buy equities is just before a war breaks out, when hostilities actually begin, or when US ground troops advance into Iraq.
Analysts also say whether a rally would gain strength or the market resumes its bearish trend would be determined by the duration of the conflict and the number of casualties.
When the market foresees it to be a short war, it will rise,'' said the head of an asset management company. But if investors take a longer term view of the market, they will eventually make money if they were to buy stocks at current levels.''
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