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Issue No.53

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Looking Back at 1997

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561


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Looking Back at 1997

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Email:nassb@po.jaring.my

1997 will be best remembered as one in which global financial markets were rocked by tremendous volatility. Two developments shaped the year, the collapse of the currencies and stocks of the East Asian Tigers economies since July and the wave of selling which hit the world stockmarkets including a one-day 550-point plunge on Wall Street.

The East Asian economies have for many years been regarded as modern miracles for economic growth and was the fastest growing region in the world. Since the crisis hit the region, many fear problems such as soaring inflation and unemployment would cause global recession.

Currencies and stocks have lost half of their values as the crisis of confidence continues to hang over the gloomy regional financial markets. Even, Japan, the second largest economy in the world suffered the collapse of several finance houses, stalling its already fragile economic recovery.

Currency turmoil, asset price collapse, collapsing investors' confidence, corporate and financial sector bankrupties, repeated IMF bailout funds for crippled nations, Korea, Indonesia, and Thailand - all proved to be too costly for many investors.

Malaysia has not been spared. Except for the first quarter of the year where the key Composite Index hit a high of 1,278.94 on February 26, the year's performance on the local bourse has been both very painful and disappointing for many.

Blue chips were hard hit losing half of their values while other smaller stocks fared even worse. The massive sell-down crippled most stock players particularly those who borrowed to invest. The weak Ringgit did not help. After hitting a 17-month high of 2.4660 to a US$ dollar on January 13, 1997, the Ringgit has weakened sharply against most major currencies.

Following is a chronology of events during the year which are worth remembering.

Table 2. 1997 Summary

Date

Events

January 13

Ringgit hit a 17-month high of 2.4660 to a dollar.

February 26

The KLCI hit a high of 1,278.94.

March 28

Bank Negara announced curbs on banks' lending to the property sector and share purchases.

March 31

The KLCI dropped 14.5 points - start of market slide.

July 22

Bank Negara announced its foreign exchange reserves fell by 12.5% to 61.90 billion ringgit after rounds of intervention to defend the Ringgit.

August 3

Bank Negara announces local banks' non-trade related swap transactions in foreign exchange market is limited to RM$2 million for each foreign customer.

August 18

Rating Agency, Standard and Poorís revised outlook on Malaysia's long-term A-plus foreign currency and AA-plus local currency ratings to stable from positive

August 20

Malaysia recorded RM1.8 billion surplus in the first quarter 1997

August 21

Standard & Poor's revised outlook for two Malaysian banks to negative from stable

August 27

Finance Minister Anwar announced the lifting of RM100,000 levy on property purchases by foreigners with immediate effect

August 27

The KLSE announced trading restrictions on a 100 blue chip stocks and banned short-sellling

August 30

Companies allowed to buy back shares from September 1, 1997

September 04

Prime Minister Mahathir lifted short-selling on the 100 stocks from September 5 and indicated mega projects would be deferred due to Ringgit weakness

September 25

Standard and Poor's revised Malaysiaís long-term currency rating outlook to negative from stable

October 17

Malaysia announced belt-tightening budget for 1998

November 17

United Engineers (UEM) acquires 32.6% in parent Renong

December 01

Finance Ministers of the ASEAN announced its plan to help each other with funds during crisis

December 05

Finance Minister Anwar announced further measures to boost confidence in the financial system

Source: Normandy Research

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