Tuesday, September 20, 2011

Market Topping - Update

Malaysia being one of the free and open capital market in the world is susceptible to market volatility due to flow of foreign fund. As you can see, as the market started to moving up in Q3 2006, Ringgit started to strengthen against USD. Ringgit continue strengthening until end of Q3 2007 albeit KLCI peak in Jan 2008. The time lag was obviously due to the BNM intervening the currency market. KLCI down trend and strengthening of USD accelerated in Q2 2007 and peak in early 2008 coincide with KLCI bottom out.

KLCI uptrend rally begun in early 2008 and peak in July 2011, a good and fabulous 2 1/2 years bull run. This bull run has led to USD depreciated 20% against Ringgit. Well, i think the correct way to describe the scenario should be, foreign funds that aggressively bought up Ringgit to participate in local equity market has continuously pushed up KLCI to a new height adding about > 60% appreciation.

Now the USD appreciation has accelerated with a quick spike. So the next question is whether this spike is temporary or permanent. I will discuss this in the next posting.

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