MONTREAL - Patterns in the Asian equity markets were fairly mixed last week,
without any particular region demonstrating significant uniformity of movement
or of volatility. Shanghai had the only negative move on the week, and its
volatility was second only to Mumbai (which was closed on Thursday, and on
Friday rose 0.8% despite the terrorist attack). The two other Greater Chinese
exchanges showed relatively little volatility in comparison with the other
Asian markets.
Hong Kong posted the largest gain of the week, up 9.8% to 13,888 although on
relatively unremarkable volume. Other than the BSE Sensex 30 in Mumbai, which
was up 2.0% to 9,093, the other principal indices of national equity markets
regularly
discussed here all rose between 4.2% (Singapore) and Hong Kong's near 10% gain.
Part of the general rise in Asian markets this week is a general response to
the US Federal Reserve's capital injection into Citigroup and the new loan
facility intended to liquefy credit markets. However, the evaluation of China's
stimulus announced earlier in the month will have a longer-term influence, and
this verdict is still mixed.
The reported statement by Zhang Liqun, who works at a cabinet-level research
council, that China's economy "could" grow at a 10% rate in 2009, gives the
most optimistic growth figure that any serious observer has bruited in quite
some time. The World Bank's latest estimate is that China's growth rate in 2009
will be the slowest in nearly two decades.
According to Bloomberg News, the chief economist at China's State Information
Center, Fan Jianping, was more realistic, estimating a (still optimistic)
growth rate between 8% and 9% although "the overall trend will be down" despite
the stimulus packing contributing between 1% and 2%. This means that the
average estimate would be a growth rate of 7% without the stimulus package,
which is below the consensus 8% level required to keep the unemployment rate
level.
From that it follows that if the stimulus packages fails to achieve the
expected bump in the growth rate, then things will get rather much worse than
most people care to consider at present. The generally agreed relative weakness
of business structures of China's domestic enterprises to cope with the global
downturn is not encouraging. Indeed, while all other major markets in the
region were significantly up, the main Shanghai index failed to follow through
on last week's penetration into the strong 1,900-2,000 resistance band, and
lost 5.0% to close at 1,871.
Taiwan meanwhile gained the weekly average of 6.9% to close at 4,460. Having
touched an intraday low of 3,955 on November 21, Taiwan might recover to as
high as 5,000 before running into significant resistance. That is the level
that halted its two-week-long minor recovery at the end of October and
beginning of November, the site of very long-term resistance from late 2000 and
early 2003, and moreover almost exactly 50% down from its late October 2007
high.
A ratio of 50% for the Hang Seng would take it as high as 16,000 during the
current short-term recovery, which is the midpoint of the 15,000-17,000
resistance band first established in late 1997 and then strong confirmed from
late 1999 through mid-2001. Given that as of the beginning of November, all
these markets were down an average of 50% on the year, it is not out of line to
suppose that what we have is a bear market rally in the Chinese region, with
the Shanghai market being the notable, unavoidably remarkable exception.
A recovery to 50% of its October 2007 mark would put the Shanghai Composite
Index at about 2,900, which looks rather out of the question for the near term,
although chart indications from early 2007 as well as summer this year do point
to such a level perhaps sometime later in 2009, although without promise of an
upwards breakout above it.
The Australia and New Zealand exchanges performed very well last week.
Australia posted the second highest gain, up 8.4% to close at 3,673, while New
Zealand was average, meaning it still did not too badly.
Despite this, Australia's newly announced US$10 billion stimulus does not
inspire confidence in the Chinese market either, with more government aid
promised if the economy slows more than expected. That package follows on a $7
billion plan announced last month: together with a 2% cut in the central bank
interest rate over the past three months and expected budget deficits growing
with every new estimate.
Despite the general and marked uptrend this week, there are undercurrents that
raise caution. In particular, the "swing" markets of Mumbai and Singapore (in
that they do not easily to conform to other regional patterns and frequently
"swing" from following one group to following another) were two of the three
most volatile on the week. This is a symptom of a broader and deeper malaise.
This impression is somewhat belied by the moderation of performance in Tokyo
and Seoul this week, where the Nikkei 225 and the KOSPI gained a bit more, and
were a bit less volatile, than average. However, their recent huge movements
give only an impression this week of exhaustion rather than stability.
R M Cutler (http://www.robertcutler.org) is a Canadian international
affairs specialist.
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