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Crisis is yet to come

Worst is yet to come
Equity analysts and economists concur that the worst is yet to come before a global economic recovery could be expected to begin in the second half of next year.

A year of economic and financial turbulence

2008 will be etched in many national and corporate annals as a period of turbulence. A toxic combination of subprime loans, financial-liquidity crisis, and soaring inflation jolted world economies, hurt corporate earnings, rocked global stock markets, and shattered consumer sentiments.

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News on policymakers initiating interest rate cuts, and stimulus packages to spur consumer demand, multinational firms trimming their workforce, and stock markets plunging to fresh lows grabbed media headlines as the global community wrestled with a tougher economic and business landscape.

Major economies including the US and Japan, besides eurozone countries fell into recession, while Iceland declared national bankruptcy. Rapidly expanding China and India, meanwhile, are bracing for a slowdown amid falling exports as consumer demand wanes.

Corporate pages were splashed with heart-wrenching stories of failures in once high-flying firms. US-based Lehman Brothers Holdings Inc and Merrill Lynch & Co Inc succumbed to a financial mess triggered by the subprime-mortgage crisis. Lehman filed for bankruptcy, the largest in corporate history, while Merrill Lynch was taken over by Bank of America Inc in a US$50 billion (RM175 billion) deal.

Malaysia has not been spared. It has seen its exports shrink while domestic demand is expected to slow as the people tighten their purse strings in line with a weaker economic outlook.

Wealth destruction on global equity markets has been unprecedented. Pertinent questions commonly asked include when will the markets botttom out, and when will a global economic recovery happen?

Worst is yet to come
Equity analysts and economists concur that the worst is yet to come before a global economic recovery could be expected to begin in the second half of next year.

RHB Research Institute Sdn Bhd head of research Lim Chee Sing said Malaysia might experience its worst economic downturn as early as the first quarter of 2009, before its fortunes gradually improve in the later part of the year.

“While this will imply earnings risk, the issue is whether the market has priced in the gloomier outlook for the economy as well as corporate earnings. It is likely to be a market of two halves, with greater volatility in the first half and recovery in the second.

“This year (2008) has not been good as the (Malaysian equity) market has fallen almost 40% but it has outperformed most of its regional peers. The worst-performing sectors are plantation, property and construction,” Lim told The Edge Financial Daily.

According to RHB’s “2009 Market Outlook & Strategy” report, the local stock market has fallen less than other bourses in the region, possibly because many foreign investors had already

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