Introduction
Many claimed that the present stock market, affected by the America's credit crisis, looked more and more similar to the stock market during Asian Financial Crisis in 1997/1998.
The Asian Financial Crisis
The Asian Financial Crisis started sometime in late 1996 and the market recovered only in 1998. The market reclaimed its lost ground only in l Jan 2000, or about 3 years later. Then STI dropped from a high of 2,456 on 2 Sept 1996 to a low of 1,650 on 4 Sept 1998. That was about 800 points or 67% over a period of exactly 2 years. In between, STI saw a "dead cat bounce" of about 430 points or 35% from 1,245 on 16 Jan 1998 to 1,675 on 20 March 1998. This dead cat bounce lasted 2 months.
The 2008 Financial Crisis
The present financial crisis started from America. A bubble was formed in the US home sale market. It started to burst in mid 2007. Then a few hedge funds involved in the subprime home loan got into financial trouble in July 2007. This credit crisis grew bigger and bigger. First, a few smaller US banks gone bankrupt and finally, it affected larger banks like Bear Sterns, Freddie Mac, Fannie Mae and Lehman Brothers. Even AIG, one of the World's largest insurance company, was not spared. The crisis spread across the Globe. US Government cut interest rates and came up with more than US$1,000 billions of various financial packages to rescue the US economy.
During this crisis, DOW dropped from a high of 14,000 in Oct 2007 to a low of 8,145 on 27 Oct 2008. It lost a total of about 6,000 points or about 46% over a period of about 1 year. STI shed about 2,300 points from the high of about 3,900 to the present 1,600. This is a loss of about 60%, 14% more than DOW.
Are The Two Crisis Similar?
The Asian Financial Crisis and the US Credit Crisis are all connected to financial matters. There appears to have some similarity here. If we were to superimpose both time charts, they look something like this:
Has the Market Hit the Bottom?
Whether the market has hit its bottom or are there still more downsides to come, one will have to wait for Mr. Market to decide. The Asian Financial Crisis then was not as widely spread as the present US Credit Crisis. One would have to wait patiently to see the effectiveness of the rescue efforts put in by the various World's Central Banks.
The stock market could be taking a breather right now; but it may continue to dip if the rescue efforts put in by the various Governments were found not to be effective.
Related Articles
1. Bear Flag in Our Backyard 5 Sept 2008
2. Why STI Was Falling More than HSI, Shanghai and other Indexes? 4 Sept 2008
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