Celebrating 10th Anniversary of Stock Market Crashes

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Aug 29 2007
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This year, 2007, marks the 10-years anniversary since the last recession in 1997 Asia Economiy Crisis which saw the local Kuala Lumpur Composite Index plunged from the pride of 1,230 points to the lowest of merely 262 points (Sept 1998). 1997 crash was also the most severe to the extend that the former premier Mahathir went berserk and point his finger at George Soros as the moron who started the crisis by pulling out from the stocks market, not to mention how Mahathir appealed to all the Malaysian to chip in their jewelleries to help save the nation. Of course nobody gave him a damn, not that the people are unpatriotic but because basically everybody on the street were suffering as badly, if not worse, than Mahathir’s cronies.

Below is the extract from the summary of the ten-year cycle of market crashes in Malaysia published by theStar. So, instead of celebrating 50th Independence Day in less than 2-days away, you might want to take the moment to celebrate the 10th Anniversary of Market Crash as well.

The market crash in 1987/8

10 year market crash cycleThe 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 Malaysia’s other recent market crash.

The market crash in 2007/8 ?

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.

Analysts 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 Malaysia stock market was mainly due to the fear of sharp drops in the US, Hong Kong, Singapore, South Korea and Japan markets. Even though Malaysia’s 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.

Note from FinanceTwitter: For people (including so-called professional stock-markets analysts and fund-managers) who keep on argueing that Malaysia will not be affected by the subprime mortgage or housing crisis currenctly experienced by U.S. simply because Malaysia’s fundamentals are still strong and the country’s exposure is almost nil, it only shows these peoples are either ignorant or just gave their opinion for the sake of giving it out.

malaysia market crash every 10 yearFrom the above short summary you can see how both 1987 and 1997 crashes were caused by external factors, both started in U.S. and Thailand respectively. Were the Malaysia’s fundamentals and overall business strong and intact then? You bet, as the former premier was perhaps the only person who shouted “The country’s fundamentals are strong” thousands of times to the investors till his throat sored but nobody gave him a damn.

It’s the perception and the emotion which runs during such crisis. Any market rebounds will just prompt fund managers to continue offloading their equity exposure – that’s the job of the fund managers. And if the fund managers who have the highest stocks holding among all the investors are selling, what do you think the small players will do? It’s the chain-reaction of how human behaves when fear is in the air. So nobody knows for sure if 2007 will be the year where the market will crash again, or maybe it’s already started?

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