Impact of American Involvement in Wars on KLCI (Since 1997)

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The threat of U.S. military action in Middle East and North Korea has put pressure on market. Let us first recap the key events that happened up to date that might trigger war in near term.

7 April 2017: US launches missile strike against Syria.

11 April 2017: North Korea tells America it’s ready for ‘war’ after the US Navy makes ‘reckless’ show of force.

14 April 2017: U.S. drops ‘mother of all bombs’ in Afghanistan.

It is still uncertain whether a war initiated by America will happen. However, it will be worth to look into the past impact of American involvement in wars on KLCI, before making any decisions in our investment.

3 wars that American forces involved in and their impacts on KLCI index:

1. Invasion of Afghanistan: United States and Coalition Forces vs. the Taliban regime in Afghanistan to fight terrorism. (Oct 7, 2001 – Dec 28, 2014)

Observation: Prior to the official invasion of Afghanistan on 7 Oct 2011, a long red candle was seen in Sept 2011. But the actual start of an intervention quickly reversed the stock market trend.
KLCI starts to reverse the downward moves by moving in uptrend until April 2002 (Price increased by 32%).

2. Invasion of Iraq: United States and Coalition Forces vs. Iraq (Mar 20, 2003 – May 1, 2003)

3. 2011 military intervention in Libya (19 March – 31 October 2011)

Observation: KLCI price gained by 0.24% from Mar 2011 to Jul 2011 before the ‘August 2011 stock markets fall’.
In August 2011, there was a sharp drop in stock prices in stock exchanges worldwide. This was due to fears of contagion of the European sovereign debt crisis to Spain and Italy, as well as concerns over France’s current AAA rating, concerns over the slow economic growth of the United States and its credit rating being downgraded.

Impact of American Involvements in war on Dow Jones Industrial Index:

Overall, American involvement in wars only posed a short term volatility in stock market. The market moves resumed its previous uptrend afterwards.

Impact of American Involvements in war on US Dollar Index:

“It’s not that it’s welcome, but once it gets underway, you can quantify what the situation might look like,” said Mark Luschini, chief investment strategist for Janney Montgomery. “When you’re left in the dark about when it will start, what will be the result, it gives investors trepidation.”

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