Examanition of past Stock Market Movement of Malaysia and Singapore Part-1

Candlestick chart and quotes on PC screen

By using an index, we can very quickly have an idea of how much the

market has moved within a noted period. For example, if the index

stood at 600 at 31 December 1982 and it is now standing at 800, we can say that the market as a whole has moved up 33 per cent

[  (800-600) divided by 600  ]. Let us now examine the history of market

movements in Malaysia/ Singapore. Figure below at the end of this

chapter shows graphically the movement of the KLSE Industrial Index from 1970 to 1988. Table below shows graphically the annual range of movements of the KLSE Industrial Index for the same period. Table below show the same information on the Straits Times Industrial Index for the years of 1973-1988. Let us look at the past record of stock market movements as shown by these two indices. We shall examine the movements of the Malaysian market in greater detail as the writer is more familiar with this market. Table Below provides further information on the movements of KLSE Industrial Index in numerical form for 1970 to 1988. What can we learn from the history of overall market movements in the Malaysia/Singapore stock market?

We can learn a lot from studying the table and figures as, I strongly believe the past can provide us with a guide to the future.

 

(1) Generally Upward Trend. Looking at the charts, we can see that although there are peaks and troughs, the overall tendency is for the market to be moving upward. Although the trend is generally upward, there appears to be a distinct change in the trend before.
                      KLSE Industrial Index 1970 – 1988

Year             Lowest           Highest          Change*        Overall Trend


1970               88                  114                 23%                Down

1971               96                  165                 41%                Up
1972             165                  434                 62%                Up
1973             243                  520                 53%                Down
1974             143                  302                 53%                Down
1975             144                  269                 47%                Up
1976             210                  263                 20%                Down
1977             204                  286                 29%                Flat
1978             222                  398                 44%                Up
1979             305                  377                 19%                Up
1980             375                  547                 31%                Flat
1981             459                  823                 44%                Down
1982             364                  576                 47%                Down
1983             460                  655                 30%                Up
1984             494                  691                 29%                Down
1985             386                  556                 31%                Down
1986             305                  491                 38%                Up
1987             459                  913                 49%                Up
1988             512                  784                 35%                Up

**The “Change” figures are calculated as “Change From High”, i.e. the percentage change between the maximum and the minimum prices calculated as a percentage of the maximum.

and after 1981. Prior and up to 1981, the trend is fairly strongly upward while after 1981 and up to the time of writing (end of August 1988), the trend appears to be weakly upward. Allowing for the difficulty of trend drawing to be discussed next, we can say that up to 1981, the Malaysian market was growing at an annual rate of about 12 per cent per year while the Singapore market was growing at about 15 per cent per year (the. straight lines in the middle of the charts). After 1981, the trend appears to be much less, around 4 per cent per annum for the Malaysian market and 6 per cent for the Singapore market. The reason for slowdown in the growth trend appears to be caused by deflation and the negative growth experienced during the first half of the Eighties. There is a possibility that the trend may steepen again in the future but this is difficult to ascertain at this stage. These trend lines may be regarded as equivalent to the intrinsic value of an individual share for they mark the inherent value of themarket as a whole. The market seems to fluctuate around these trend lines. In the future, the upward tendency of the market is most likely to continue although we are not sure what will be the actual growth rate. However, by projecting a trend which is conservatively drawn (say 8 per cent for Malaysia and 10 per cent for Singapore) we can have some idea where the market is heading. If we buy our shares when the market is at a reasonable level (that is when the index is around the trend line or below), we can rely on the long term rising trend to obtain our gain from the market. Unless we buy shares near the top of the peaks, we should be able to profit from buying shares after a few years. It is therefore important to go for the long run.

(2) Trends Not Consistent. It is very difficult to draw trends to lit stock market movements. The main problem is determining the starting point of the trend. While it is true that statistical programmes can be used for trend determination, one still has to rely on subjective judgement to determine the beginning and ending point of a trend. The trend lines shown in the charts are drawn to the best of my knowledge.
(3) Irregular Price Patterns. Although the price movements appear to be centred around the trend lines, they do not appear to be regular. Small troughs can be followed by big peaks and vice versa. The period in which the market prices stay above or below the trend line is not regular either. The market can stay under or overvalued for some years. This means that it is probably very difficult to predict accurately the direction of market movements over the short run.
(4) Prices Can Be Very Volatile. As can be seen from Table 15.2, the price movements even within a year can be considerable (the average is 38 per cent). The minimum movement within a year is still 19 per cent from the highest to the lowest which is about six times greater than the average dividend yield. This means that price changes can very quickly wipe out any return provided by dividend. This means that the value of one’s investment can vary considerably from year to year. One must be able to sustain such losses if one wishes to invest in shares.

(5) Prices More Volatile Upward. It appears that prices can move very much further from the trend tine on the up side than on the down side. Except for a short period in 1975, the prices do not move very far: from the trend line on the down side. But it can move a considerable distance on the up side. It would appear also that there are more up years than down years. This means that the prices tend to build up slowly over several years and then fall much faster than they rise. However, big upward movements tend to be followed by sharp downward movements. It is thus a lot safer to buy when the prices are below their intrinsic value than when they are high.

(6) Big Booms Are Irregular. It appears that the big booms take place somewhat irregularly. There have been three in the last 18 years; 1972/1973, 1980/1981 and 1986/1987. Not only are they irregular but they are of short duration, one to two years appears to be the usual length. This means that it is difficult to catch a big boom at its beginning. If one goes in after the market has already moved up a great deal, there is a big risk that the market will crash shortly after.

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