Disappointing 2008 with KLCI losing nearly 39% amid global crisis

PETALING JAYA: For investors, 2008 is a year which they wished to forget as soon as possible after the KL Composite Index (KLCI) fell 38.9%.

The KLCI rose to its historic high of 1,516.22 on Jan 11 but the euphoria proved unsustainable in the later part of last year, as investors’ sentiment was battered mainly by the US financial crisis, which saw the exit of foreign funds.

Yesterday, it ended the year 4.88 points lower at 876.75, down from 1,435.68 on Jan 2. For the year, it had fallen 558.93 points.

This was the worst annual performance since the 1997/98 Asian financial crisis when the KLCI fell 51.7%. In 1997, the KLCI tumbled from 1,231.45 on Jan 3 to end the year at 594.44.

More than 10 years on, it was a reality check for retail investors, financial institutions and analysts following the fallout from the global financial crisis, the worst since the Great Depression.

For 2008, market capitalisation, including companies that were either delisted or taken private, shrank from RM1.057 trillion to RM663.80bil.

“Many were caught unprepared as they did not think how severe the impact of the US financial crisis would have,” said the chief investment officer of a local fund management company.

Analysts had earlier predicted that the KLCI would sustain above the 1,500-level in the first quarter of 2008, due to domestic and external catalysts which would buffer the stock market.

They had pinned their hopes on expectations of the general election in the first half, fiscal stimulus following the implementation of mega infrastructure projects and rising foreign direct investments and portfolio inflows.

The fiscal stimulus included the several mega Ninth Malaysia Plan projects in 2008. These comprised the RM12.5bil double-tracking rail project (Ipoh-Padang Besar stretch), the RM9bil Pahang-Selangor water transfer project, the RM9bil Bakun undersea cable project and the RM3bil Second Penang Bridge.

The market took a hammering in March after Barisan Nasional’s failure to garner a two-thirds majority in Parliament in the March 8 polls and also growing fears of a recession in the US.

When the market resumed trading on March 10, the KLCI fell 123.11 points, or 9.49%, to close at 1,173.22. Local sentiment was also affected after the Dow Jones Industrial Average fell to 11,740, its lowest level since October 2006, dropping more than 20% from its peak just five months ago.

On July 11, Indymac Bank, a subsidiary of Independent National Mortgage Corp, was placed under receivership, making it the fourth-largest bank failure in the US.

The KLCI hit a year-low of 829.41 on Oct 29 on heavy selling pressure, especially from foreign funds, which were repatriating their funds.

In the US, Treasury Secretary Henry Paulson had on Nov 12 abandoned plans to buy toxic assets under the US$700bil troubled asset relief programme. He believed the remaining US$410bil in the fund would be better spent on recapitalising financial companies.

Asian markets fell, with the KLCI skidding 15.19 points, or 1.71%, to 875.15 at the midday break on Nov 13.

For the year, stock exchange operator Bursa Malaysia Bhd fell the most in terms of prices, sliding RM9.15, or 64%, to end 2008 at RM5.15, reflecting the depressed equities market.

Kuala Lumpur Kepong Bhd fell RM8, or 49%, to RM8.90 while Sime Darby Bhd posted a decline of RM6.70, or 56%, to RM5.20.

Aseambankers Equity Research head Vincent Khoo described 2008 as a “highly disappointing year for investors”.

He was surprised about the extent of the destruction of the credit derivatives market, which led to the financial crisis, and bailout of major banks.

In Malaysia, sentiment was affected by the surprising results from the general election, the windfall tax on independent power producers and also the levy on plantations.

For latest MSEB indices, charts and other information click here New York Exchange: http://www.nyse.com

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