Eyeing the ETF - The Fed, QE and Malaysia

It is all over the news (business news that is) that the FED made a surprise decision (or indecision?) that basically means a that they are not backing out off the QE just yet; hence markets in Asia would benefit from funds flowing back into the region. This would theoretically push up the stock markets as usually this would normally be the main destination of short term investments and hot money. More money in the stock market chasing after the same number of stocks would inevitably lead to inflated price.

The SunDaily reported: 
"PETALING JAYA (Sept 20, 2013): The ringgit advanced 2.6% yesterday against the US dollar, leading the charge in regional currencies, as funds from overseas rush back into bonds and equities amid a relief in Asia after a surprise decision by the US Federal Reserve (Fed) overnight to stay pat on its monetary stimulus programme.
The FBM KL Compoiste Index jumped 21.51 points, or 1.21% to close at 1,792.91 yesterday.
Global fund managers have been pulling their money out of emerging markets in Asia since June on expectation that the US central bank will scale down its US$85 billion a month asset buying programme on Wednesday."

For normal investors, that would also mean that the KLCI would go up. And normally, these investors would flock to the banking stocks or some major component stocks of the KLCI hoping that they would move in tandem with the market. But it would be interesting to see how do the Exchange Traded Funds on Bursa would react.

ETFs are trackers of the market. If you need a primer on ETF then you could read here. Basically it means that ETF is supposed to go up and down together with the market, hopefully in the same proportion. So if one thinks that the market is going up, he can take a position in the market by buying an ETF from a (familiar) stock market instead of buying the individual component stock or hitting the futures market.

We have two ETFs that generally tracks our market, the DJIM25 and the FBM30. This is how they have fared for the past one week (thanks to Bloomberg.com).


And since the news broke out in the local newspaper:



As it is a tracker index, it is technically supposed to behave in general tandem with the stock market, efficiently. It would be interesting to see how would the local ETF actually behave if the KLCI continues in its trend.

Let's keep an eye on this, shall we?

Disclaimer: 

This is not a recommendation to invest at all, this is to give you more information so that you know more about investing. This is EDUCATIONAL