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Straits Times 3,222.55 -13.95 -0.43%
KL Composite 1,818.86 +8.18 +0.45%
Hang Seng 23,302.20 -30.98 -0.13%
Dow Jones 16,805.41 +127.51 +0.75%
KLSE Composite Index Outperforms Regional Indices
Malaysia Trendspotting | 29 August 2012
By: Soh Tiong Hum
Articles (84) Profile

The KLSE Composite Index (KLCI) is not only remarkably resilient in this global slowdown, it is also a winner among regional indices. The outperformance that began since early 2011 is clear. More interestingly, it shows a reversal of fortune when we look at the performance of these indices in the late ‘90s during the Asian Financial Crisis.

In the illustration below, I compared the KLCI with the Hang Seng Index (HSI) (blue) and the Straits Times Index (STI) (red). The charts reflect the monthly candlesticks across the period from the late 90s till date. Each index is accompanied by a 24-month moving average so that we can visualize a two year trend.

Correlation
In the chart, all three stock indices have a high level of correlation. The peaks and valleys are well aligned and display the same response to macro cycles. Establishing this is important, in order to compare the performance between the three.

Performance in regional bourses diverging; KLCI rallies higher

Leadership
Although they are positively correlated, KLCI has clearly been outperforming since early 2011. As HSI and STI remain in correction mode from the high of 2008, KLCI has been making new highs.

  • January 2008, KLCI high 1524.69 points
  • January 2011, KLCI high 1576.95 points
  • 14 August 2012 close, KLCI 1652.90 points

Another way to see this strength is to inspect the 24-month moving average. KLCI is clearly above its 2 year trend while the other two thread closely. It is worthy to note that positions were reversed during the Asian Financial Crisis. Emerging from the crisis in 2000, both HSI and STI rallied to new heights while KLCI languished compared to its performance in 1997.

The place to be
Technical studies do not provide explanations for such phenomenon so we won’t go into that in this article. But investors in the Malaysian bourse should be encouraged by the performance. With hot money flowing around the region, divergence in performance could widen further with the KLCI leading higher. The possibilities are exciting.

Soh Tiong Hum is a regular contributor to Sharesinv.com. Tiong Hum can also be found and followed on Google+

Please click here for more information about this author.

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