Chart 1: USD-RM exchange rate as at September 22, 2010 (Source: Yahoo Finance)
I have mentioned before that our stock market is correlated to the strength of our Ringgit. To put it differently, our FBM-KLCI is inversely correlated to the USD-RM cross rate. From Chart 2 below, we can see the following:
1) the bullish reversal in the USD-RM in March 2008 coincided with the top of the 2007 bull market for equity; and
2) the bearish reversal in the USD-RM in March 2009 coincided with the bottom of the 2008-9 bear market for equity.
It's interesting to note that the 2007 bull market in Bursa ended with a V-shape reversal. Our stock market has a sharp run-up over the past 2 months. Are we about to see another V-shape reversal? Has the die been cast? Watch the forex market closely!
Chart 2: FBM-KLCI & USD-RM exchange rate for the past 5 years (Source: Tradesignum & Yahoo Finance)
4 comments:
Hi Alex,
If i assume sharp correction will occur at KLCI. I should sale cyclic stock, then technology, then banking and then defensive stock. In general sense, i suppose GLC company is lower urgency.
Appreciate your opinion and I am sorry for the messy question.
AL
Hi Alex,
Thank you so much for always sharing your useful and valuable views and opinions for us, you really are a GENEROUS and a GREAT analyst of our time!
Patrick Lim
Hi Ai Ling,
If we were to enter into a bear market, you should reduce our exposure to the more volatile stocks, such as cyclical stocks and stocks which have gone up a lot. Over the years, I notice that market tends to revert to the mean. The more you've gained, the more you'll give back.
GLC companies have general tracked the market in this cycle, with a few notable exceptions (such as Tenaga). They would also follow the rule of reversion to mean.
Hi Patrick Lim,
Thanks for the nice compliment.
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