The American Effect

…Yale’s Robert Shiller (founder of the Case-Shiller Index on U.S. housing prices), who said yesterday that “the U.S. stock market looks a lot like at did at the peak before all 13 previous price collapses,” investors may look at this as another brick in a new wall of worry. (Shiller defines a bear market as a 20% drop in prices, but does not issue a firm timeline for this drop.) ...” read more

How would a bear market in the US affect the FBMKLCI?

Since 2010 (post-GFC), Malaysia’s FBMKLCI has trended in tandem with the positive movements in the SP500 index. Nevertheless, the SP500 index has outpaced the FBMKLCI since 2015, as shown in the comparison charts of 60-day moving median of FBMKLCI and SP500:

KLCI vs SP (median).png

A simple regression analysis is computed between the moving medians of FBMKLCI and SP500, of which an r-squared of 0.54 has been derived:

Regression Results.png

Based on the statistical relationship against the SP500, the FBMKLCI is currently at level below that of the forecast value (based on median) of 1,851 but it is within the 95% upper & lower confidence bands (since Apr 2010 till date):

Forecast Median KLCI_Sep 17.png

The following simple high-level analysis shows the potential & possible impact on FBMKLCI if there is a 5% – 30% drop in the SP500. In this case, the lower band may be potential support zones (assuming the regression relationship holds).

Scenario.png

 

On why I use moving medians for the analysis, it is just one of the possible avenues to part filter the market noises.

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