Financial Meltdown2 Oct 2008

As we come to the end of a volatile month of Oct 2008, we are witnessing more financial problems and expecting things to get worse. No amount of government intervention (pumping of new money into the banking system, lowering of interest rates, cajoling banks to on-lend and pass lower interest to borrowers) could stabilise the economy and the financial markets. It just continued to fluatuate wildly amidst uncertainties dragging the poorer nations into near bankruptcies along the way. Two weeks ago the Nikkei and the Wall Street stayed above the 9000 level; today Nikkei briefly fall below 7000 ( a 26 year low before the government banned naked short-selling) and Dow Jones opened at just over 8000 before ending the day 11% up back to 9000! In Australia, the index hit a new 4 year low, finishing @ 3794, off its morning low of 3724 against 6900 a year ago. We are seeing some of the most turbulent times ever on the world stock markets (GLOBAL stock markets suffered their worst month in history in October, losing a whopping US$5.79 trillion (S$8.6 trillion), Standard & Poor's reported on Monday). The turmoil has led to coordinated government intervention into the financial systems of many countries at a level not seen before in my lifetime.

Crude oil dropped to a 17 month low of US$62 per barrel. Yen and US$ continued its upward climb caused by panic demand for cash. All across Aisa and Europe, double digit falls in the stock indexes were common and the free market theory of self-regulation has not been seen to work. In fact Alan Greenspan, the previous Fed Reserve Chairman who was a firm proponent of free market (an influential economist who in time past swayed market just by voicing his views) was earlier quoted as saying the property market bubble was little cause for concern but subsequent events had caused him to rethink, expressing shock of a flaw in the free market theory - in being unable to regulate itself. The frenzy of greed and fear feeds on itself thus causing further damage to self-regulation.


Malaysia too is beginning to feel the effect of the global crisis. MIER is adjusting its forecast downward. Index-wise, the KLSE is treading close to the 800 level and doomsayers are predicting it to go down further. Individual stocks performed badly; IOI, Gamuda and KNM all one-time darlings of investment houses came tumbling down. There is concern that when local investors finally panicked and redeemed their unit trusts and sell whatever stocks they are keeping irrespective of prices or when force selling takes place, the index will go even further south. The government announced an injection of RM5 billion into Valuecap, the company owned by Khazanah to purchase beaten-down stocks but this may not be able to stop the slide. It is a worldwide phenomenon and confidence has been shakened. My analyst friend advised nibbling but remained bearish over the short term. Market today is very volatile and changes direction like the wind. The important thing is not to be blown off course.


Last Sunday, a friend (an entrepreneur who is an OEM supplier to the Japanese electronic industry eg Panasonic/Sony) mentioned that his main customer is reducing the number of working days to 3 from the present 5 and employees will take home a lower pay. This appears to be the beginning. Today we read that Thailand may lose 1 million jobs as a result of the impending economic slowdown.


CPO prices last week went limit down to RM1370. IOI was reported as losing heavily (up to RM100 million in Q1) on FOREX position and many companies with loans denominated in USD and Yen are impacted adversely. We also see high volumes of share being transacted as prices plunged perhaps signalling heavy selling by foreign investment houses and buying by the main shareholders and local investment houses.


So continue to stay disciplined in spending and work hard to keep your jobs.