MONTREAL - Asian equity exchanges finished very strongly up this week but
remain at the critical junctures that I described in last week's column (see
On the cusp, but of what?. Most of the indices are due for a
consolidation or pullback in at least the short term. The pertinent questions
are how much further their established momentum can carry them and to what
degree economic reality can support their enthusiasm. A look at the three
Greater Chinese exchanges provides a beginning to the answer to these
questions.
The Taiwan Stock Exchange Composite (TSEC) index decided that it did not yet
have to correct the exuberance unleashed by the accords announced last week
permitting mainland investment
on the island. Indeed, the TSEC was one of the top three gainers in Asia for
the first three days of the week.
The index registered a phenomenal 6.5% rise on Tuesday alone that followed upon
a 5.6% surge the previous day. It finished the week up 9.9% from the previous
Friday's close at 6,584, although leaving a gap on Monday between 6,000 and
6,250 to which it may descend (or lower) when it later corrects its recent
explosive move.
Not to be outdone, the Hang Seng Index in Hong Kong was up 11.2% on the week by
the Friday mid-day break at 17,254 and filling the gap from mid-October in the
high 15,900s. The key level for the Hang Seng is its October 14 close at
16,832. We may expect some backing and filling in the reasonably near future,
and whether it can maintain that level will be indicative of the potential for
future advances.
The Shanghai Stock Exchange Composite (SSEC) had made its major moves earlier
and so on the current week was up "only" 5.9%, closing at 2,623, exactly 100
points above its close of August 20, 2008, which will play the same indicate
role as the Hang Seng's October 14 close will play for it.
The question for these three Greater China exchanges is how much further they
can go on their own, building upon what looks to be a Chinese macroeconomic
recovery of some significance, but which cannot be fully successful in the
absence of the rebirth of Western consumer demand, for which evidence is
lacking and hopes are just hopes.
That said, the SSEC remains near the top of the up-trend channel that has
guided shepherded its advance since the beginning of March. However, it is now
coming up against the resistance at 2,650 that stretches up to 2,900. The SSEC
could possibly move in a sideways correction for a month to six weeks without
breaking its current up channel. However, technical factors independently
suggest 2,750 as a resistance, and that falls almost squarely in the middle of
the oncoming resistance.
Shifting the gaze to northeast Asia, we find Tokyo's Nikkei 225 up 5.1% to
9,434, challenging its resistance at last year's October 14 close at 9,448.
South Korea's KOSPI was up 3.1% to 1,411, filling its gap left over from last
mid-October as did the Hang Seng Index in Hong Kong. Unlike the Hang Seng,
however, the KOSPI has already leapt into the breach of its next resistance,
which runs through the interval beginning 1,400 up to about 1,450, above which
another resistance interposes itself beginning at 1,480 but strongest from
1,540 up to 1,600. The sensitivity of the Japanese and South Korean markets to
worldwide factors should give us pause here. Between the two of them, South
Korea seems better positioned in the longer term and possibly in the shorter
term as well.
Australia and New Zealand were both up significantly on the week, with the
Australia All Ordinaries Index gaining 4.7% to 2,913 and the NZX 50 Index Gross
up 5.6% to close the week at 2,873, each of them breaking decisively through
the respective long-term resistances that I described last week. As with the
Greater Chinese exchanges, the question for these two is how well they can
justify maintaining those advances.
Specifically, when Australia and New Zealand test the trend lines through which
they have respectively broken, will they regress below and turn them back into
resistances or will they bounce off them and confirm them as new supports?
Australia is the key to answering that question for both itself and New
Zealand.
Australia will in turn be affected by Chinese demand for its raw materials as
well as by the degree of intrinsic health of its own banking sector. China's
infrastructure stimulus program may promote demand for Australia's raw
materials in the absence of Western consumer demand, but also there are signs
that the slowdown in China has begun to diminish domestic consumer demand
there, which would be a negative sign.
Is it possible that South and Southeast Asia provide an independent impetus to
world equity markets? Among the stock indices in that region, this column
regularly reviews only those from Indian and Singapore, but the signs from
these markets are not pessimistic even if they are not as optimistic as one
might like to see. The Straits Times Index in Singapore exploded no less than
17.8% this week and was indeed one of the two best performers every day except
Friday.
Closing at 2,262, Singapore's index has barreled through its October 15, 2008,
resistance at 2,059 and is making ready to challenge its long-term governing
descending-tops downtrend instantiated by its mid-October 2007 high. In the
medium term, there is a mild resistance in the mid-2,300s but this will be
reinforced by the fact the aforementioned descending-tops downtrend will pass
through that precise level over the next two week.
Finally, by mid-day Friday the BSE Sensex 30 in Mumbai is up 4.8% on the week
but down 1.4% on the day, consolidating after its recent respectable gains and
in anticipation of a relatively inconclusive electoral result for the Lok Sabha
later this month. Yet like Singapore's Straits Times Index, it has successfully
challenged its long-term descending-tops downtrend and may be set for further
gains after technical consolidation and some resolution to the expected
political uncertainty.
Dr R M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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