Friday, 6 September 2013

War and the stock market

Just this week, world leaders have arrived at Saint Petersburg for the G20 summit. One of the agenda is to discuss on the Syria crisis. Global markets have corrected since the Syria crisis due to the uncertainty of whether is there going to be a war. 

While surfing aimlessly, I came across this interesting article from seeking alpha on how Mr market reacts before and after US launched the Iraqi war. One of the interesting observations in the article and also by a number of experts, market rallied when war is started. Looking at the chart below, it is quite true for the Iraqi war during 1991 and 2003.

How about our STI? Let's us look at how our STI reacts to the 2 Iraq wars, dated Jan 1991 and Mar 2003.

If you look at the first Iraq war(red oval on left), the index rallied from about 1200 to more than 2300(in 1994), more than 1000 points.
The next Iraq war, the index rallied from about 1300 to 3650(2007), more than 2300 points.

What is the similarity here?  Both started off from a low base of below 1500. Looking at where STI is today, do you think history will repeat itself? If what the experts said in theory is true and history were to repeat itself, does that mean that STI will hit at least 4000 in the next few years ???

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