MONTREAL - Asian stocks recovered somewhat this week, rising on Monday although
on low volume and also on Wednesday, before giving back gains equivalent to
their Monday advance on Friday, after the US Congress failed to pass a US$14
billion package of financial assistance to American automobile manufacturers.
Senate Republicans broke with President George W Bush to insist on wage cuts as
a condition of approval, while the United Auto Workers labor union refused to
accept this condition before the end of its current collective bargaining
contract in 2011.
The American dollar, and US stock futures for the Friday open in
New
York, all declined sharply immediately after the
news, while Japanese automakers Honda and Nissan
each fell more than 11%,
not least because of the possible impact of the decision on
the US economy and their own sales there. This set the tone for the rest
of the trading day in Asia. The MSCI Asia-Pacific Index had fallen 3.5% by the
close of trading in Tokyo, reducing its weekly gain to 6.9%.
The Nikkei 225 closed the week at 8,236 after touching a low of 7,959 Monday, a
little more than 100 points above its long-term support from April 2003, which
it had significantly penetrated a little less than seven weeks ago at the end
of October, closing then at 7,163 before recovering quickly to over 9,500. This
last figure represents the top resistance of what is now an ascending triangle
beginning on October 27.
If the Nikkei breaks out of this formation to the upside, it could continue as
high as the high 11,000s. That would represent a retracement of almost 45% of
the index's loss since its 2007 high, a respectable and not at all unusual bear
market rally setting the stage for further subsequent declines below the
present level.
Seoul's KOSPI, the biggest winner on the week with a 7.4% gain that came on
Monday before the Friday loss of 4.4% wiped out the rest of the week's
advances, has a chart that is structurally similar to the Nikkei, although the
South Korean index looks like reaching its decision-point (the apex of the
ascending triangle) a bit sooner than its Japanese counterpart.
There is still the chance, however, that both these charts are forming oblique
rather than ascending triangles, which would increase the probability of a
resolution further to the downside before any substantial bear market rally
takes hold.
Can other indices point the way forward? The three Greater China indices offer
no definite guidance. Hong Kong's Hang Seng and Taiwan's TSEC, the second- and
third-largest weekly gainers, up respectively 6.2% and 6.1%, continue to move
counter to the Shanghai market, where the composite index was the biggest
weekly loser for the second of the past three weeks and closed at 1,940, below
the crucial 2,000 resistance level above which it had managed all week to keep
its head until just after the Friday open, although rallying weakly in the last
half-hour of trading.
Nevertheless, it is worth noting that Hong Kong was up 12% from its close last
Friday to Thursday's close this week, before falling off 5.8% on Friday alone.
The Monday move took it slightly above 15,000 on relatively high volume before
a Tuesday retracement was followed by moderate-volume closes on Wednesday and
Thursday around 15,600.
If the Hang Seng, closing the present week back below 15,000 at 14,705, can
mount a definite rally next week that takes it back significantly over 15,000
to stay, then this could indicate that the Asian region is entering the
medium-term bear market rally I mentioned above. Such a rally could take the
Hang Seng back as high as 20,000 and the TSEC as high as the low 6,000s.
However, these possibilities are just vague potentials at present, and broader
macroeconomic and global-financial conditions are, to be frank, less than
favorable. Their realization depends on the notion taking hold that economic
recovery in Asia will take hold in early 2010 at the latest.
That would allow stocks anticipating such a recovery to get traction during the
first half of 2009. Favorable projections of Chinese economic growth, for
example, could provoke a run in the industrial metals and energy sectors. Or
the hope that "the worst is over" could come to dominate market sentiment in
general. But don't hold your breath.
Australia and New Zealand continue to weaken. The former's All Ordinaries Index
and the latter's 50 Index Gross ranked as two of the region's three worst
performers for the second consecutive week, and also for the third week out of
the last five. Finally, Mumbai and Singapore posted the respectable gains of
4.3% and 4.6% respectively, which were roughly about average for the Asian
week.
The key level for Mumbai's BSE Sensex 30 is in the very high 10,000s. If it can
break through 11,000 and hold there, then a more substantial bear market rally,
up to a range of 13,000-14,000, is more likely to ensue. But a governing
downtrend that may be drawn from the mid-January high through the
August-September local maxima suggests that such an advance is not in the
cards, unless it happens explosively in the short term.
But that would then just confirm the start of a further leg down without the
bear market having yet taken hold. The outlook in either case is more
pessimistic than optimistic, and such a judgment tends to incline one towards
the idea that the present bear market rally is really a short-term retracement,
and against the notion sketched as a possibility by the Hang Seng, that a
strong and relatively sustained bear market rally is in the offing.
R M Cutler (http://www.robertcutler.org) is a Canadian international
affairs specialist.
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