Take for example the March 2020 crash due to COVID.
https://en.wikipedia.org/wiki/2020_stock_market_crash

Investors globally panic-selling which caused major indices like DJI, S&P 500 to crash.

How does this then cause individual company stocks locally to crash together?

Is it a domino effect that when major indices crash, other indices (ours being KLCI) will "just follow"? How does the chain reaction mechanism work here?

Then when KLCI crashes, local investors panic sell which cause company stock prices to drop?

when major indices crash, meaning the market tend to lock profit and hold cash

imagine your were having paper gain 100% with 100k, tomorrow it crash 20%, become 80k, your sentiment will tell you to lock the profit because you dunno how low can it goes.

and this sentiment is a chain effects, when big brothers indices crash, meaning (most of the time) the market sentiment is bearish, everyone will try to lock their profit which cause the market to sell down further\

but of course sentiment is just one of the reason

Market sentiment primarily, overly pessimistic perception of the current moment which leads to fear in the market which causes investor to react emotionally eg. cut loss / panic sell..

When there are more sellers compared to buyers in the market, it will cause downward pressure in the share price. Even though, it might not affect the company fundamentally.

When there is broad based offloading of supplies in this case which shares hence drop

All basic supply and demand narrative for fundamentals

To influence the share movements specifically there actions can be taken control the movements just like BNM uses OPR as a tool to either stimulate or control growth

Meaning, when global index holders panic sell and cause a crash

Then KLCI holders also panic sell and cause a local crash

Then company share holders also panic sell and cause the company price to crash

Betul?

Market sentiment.
When see everything drop in price, you also fear yours one also drop, so some may want to sell first or at least trim the holding to minimise the risk of dropping.

You don't need every company shareholders to sell to cause share price crash. Just more sell > buy, then price will go down.

Investors hate uncertainty. When covid-19 broke out in Wuhan, China around Nov 2019 it was still within. Then it started to spread to USA and globally around the world.. this triggered fear and uncertainty, especially during the 1st lockdown... this fear & uncertainty in the pandemic triggered the stock market as well as it is forward looking ..

Coz it's the same big players in all the markets. Like Morgan Stanley, JPM, Blackrock, Vanguard.. They are also active in Malaysia.

When they run from US, chances are they will run from Malaysia too.

Then all the smaller professional players will run too.

Indices are based on the underlying prices. It’s rather the underlying stocks in the index which crash which then causes the index to crash. Not the other way round.

Then there’s the algorithms who sell based on market sentiments. So automatically they also sell. Then more people see prices crashing, then more people sell. The chain effect will then start.

This post has been edited by kelvinlym: Aug 5 2021, 10:45 PM

this really clears things up, thanks! 👍

actually we can earn money when market crash. buy some inverse / warrant to hedge the market

With ETF and funds playing a big part of stock investing nowadays,

It's gets a lil bit complicated to judge based on historical causes

Once dropped too deep, those under margin account, need to top up, if not, investment bank will sell on behalf, if it did, then it compounded the crash.
But once those forced selling ended, market stablise and up again.