All-time high

After a massive mid-year dip, the FinanceAsia 100 rallied in the second half



The FinanceAsia 100, our blue chip index of non-Japan Asia's top stocks, has enjoyed more ups than downs since its conception in September 2002, and no year was that more apparent than in 2005. Following such an inconsistent year, predictions of how the index would perform in 2006 were scattered at best, with one school of thought suggesting that the strong finish to 2005 would foreshadow a performance surge and the other side stressing that it would follow the same inconsistent path.

Stepping back, 2005 was an extremely wayward year for the FA100, which carried nothing but momentum from the latter months of 2004. Although the index hit peak after peak, it generally underperformed on the back of volatile global and regional equity markets. Perhaps the best way to describe 2005's performance was directionless, where no major upward or downward themes emerged, and plenty of flatness ensued.

After a sizable downturn in the period between September to mid-November 2005, the FA100 rebounded to end the year at 1,375, following its peak of 1,420 in August. For the entire year, the FA100 posted a 6.3% rise in 2005 in what was clearly its flattest year since it begin tracking Asia's blues chips in 2002.

In the first month of 2006, the index practically mirrored its opening performance of 2005. When the index opened in January it immediately surged hitting a new personal best of 1,444 in the early part of the month, which suggested once again that the FA100 was in for a banner year.

In the following months, there was little reason to think otherwise, as the FA100 headed north, albeit at a calculated pace. In February, the index hit a new peak of 1,480 before rescinding slightly into early March. However, it was during this month that the FA100 really took off and records were broken.

The index broke through the psychologically important 1,500 mark in March with the momentum of a raging bull. It was a month of peak after peak and by early April, the blue chip index had grown by a scintillating 108 points in one month on the back of spectacular upside in the region's equity markets.

Buoyed by a skyrocketing month from the Hong Kong and the South Korean equity markets, of which a large chunk of the FA100 constituents are listed, the FA100 recorded another milestone, breaking into the virgin territory of 1,600. During the April/May cusp the index topped out at an all-time high of 1,626 as most of the region's equity markets went into overdrive.

However, the heroics of the index in 2006 received an earthquake-like jolt in early May. From the peak of 1,626 the FA100 experienced a freefall like it had never endured. By mid-June, the index was trading at 1,329, which works out to be an 18.3% drop over a six week period. This massive plunge was representative of a regional equity market gone mad and an overdue correction which took some by surprise with its speed and harshness.

During this period, the FA100 recorded nothing but downward movement, mirroring the summer tumble last seen on the index in 2004. Although the 2006 fall was as – if not more – drastic than in 2004, the FA100 managed to mildly recover in late June as the market correction sunk in with investors, with the index finding some must needed gusto as June ticked into July. By mid-July, the blue chip index had regained some ground, returning to the 1,450 level.

It was at this point that the FA100 began to experience its flattest stage of the year. Throughout July and August the index traded within a small range as the traditional lull of summer kicked in. By the half way point of August, it was trading at 1,460, a mere 10 points up from where it was a month earlier.

With bankers and investors returning to their desks in late summer, the FA100 finally broke out of its summer rut and began to climb. By the September 1 the index had climbed to 1,483, still down 8.8% from its peak earlier in the year, before mildly dropping off again in the following two weeks.

From this point onwards, the index truly began to recover from its mini-catastrophe in May and June. By early October, the FA100 responded positively to improving market sentiment and crossed the 1,500 level in staggering fashion.

The end of year rally, which has been a trademark of the FA100 over the past three years, officially took effect on November 9 when it ticked past the 1,600 barrier for the second time in six months and the index came close to hitting another new peak.

The index accomplished just this feat, coming full circle on November 22 when the FA100 ended the day at 1,634. The momentum did not stop there, the FA100 continued to surge in the latter parts of November and into early December.

On December 6, the FA100 set an all-time of 1,648, which will conceivably stand as the 2006 high as markets quieten down with the imminent arrival of 2007.

At the time of publication, the index was at 1636.

From its January opening to its December close, the FA100 ended up 261 points, which equates to an 19% year-on-year gain. If the peak of 1,648 in December of this year is compared to January then the index rose by an impressive 19.8%.

All and all, 2006 was generally a very positive year for the FA100, in which the 1,500 and 1,600 marks were shattered like a bullet through glass. For the most part, the index was in an ascending mode, but when it fell, the FA100 fell hard as demonstrated by the mid-year capitulation.

How does the performance compare with other major indices? Japan's benchmark Nikkei-225 index is up a mere 2.1% at the time of writing. The same can be said for South Korea's benchmark KOSPI, which has traded down by just under 1%.

On the other hand, Hong Kong's Hang Seng Index has outpaced the FA100 over the same period. From when it opened in January up until the time of writing, the Hang Seng has traded up to the tune of 27.37%. Just underperforming the FA100 is the mother of all benchmarks, the Dow Jones, which was up by 15% in 2006.