MONTREAL - Asian equity markets continued to advance this week but lost steam
during its second half. The MSCI Asia Pacific Index is at 99.7 at Friday
midday, with all of the advance coming on Tuesday and Wednesday, still 3.2%
above its 96.6 support from October 14 last year and seemingly set to resume
the advance next week perhaps at a more modest pace than heretofore.
The MSCI Asia Pacific ex-Japan Index is doing even better, reaching 310.8,
equivalent to 7.5% above its support at 289.0 from that same date.
Nationally, this week's markets were geographically stratified by volatility -
that is, the national markets in each of the regions that
this column has defined fell into groups, and the groups did not overlap. Thus
Mumbai, the most volatile market this week, was followed as second-most
volatile by Singapore, likewise a member of the South/Southeast Asia group. The
three Greater Chinese markets followed together as third, fourth and fifth most
volatile, in the order of Hong Kong, Taiwan, and Shanghai. Sixth and seventh
most volatile were the two Northeast Asian markets in Tokyo and Seoul; and they
were followed by Australia and New Zealand, the two Australasian markets, as
least volatile.
Volatility and proportion of move are frequently associated, and this week
there was significant correlation. The week's stand-out was of course India,
where the BSE Sensex 30 shot up 17.3% on Monday following the weekend
announcement of election results for the lower house of parliament, the Lok
Sabha, that pronounced an unexpectedly conclusive victory for the Congress
party and its allies, obviating formation of an unstable coalition that could
block expected further economic reforms (see
Indian stock surge false guide to economy, May 22, 2009).
During the rest of the week, the Sensex settled back, finding itself by midday
Friday local time up only 13% to 13,755 after touching the low 13,600s, just
above the 13,479 open on Monday that came two hours late and almost immediately
triggered a circuit-breaker halting trading but leaving intact the huge gap-up
from Friday's intraday high of 12,218, a gap that may be filled between now and
the swearing-in of the new government, expected for June 2.
The Singapore Straits Times Index gapped from its Monday close at 2,173 up to
2,224 at the Tuesday open, closing that day and the next at its intraday high
as it did on Monday as well, before retracing Thursday to close at its intraday
low. Late on Friday local time, it is in the low 2,220s and rising slightly
without closing the gap from earlier in the week but at the level of its
intraday high from last October 14 and set to close above that day's close at
2,128. This movement is holding clearly well above the major descending-tops
downtrend than began in October 2007. The significance of the pattern will be
confirmed if the current short-term retracement just begun is later followed by
one last upward thrust before a deeper correction sets in that should still
maintain current levels.
By contrast, the relative performance of the three Greater Chinese indices
varied widely despite similar proportion volatility. Taiwan was after India the
week's second-best gainer, up 3.8% to 6,737, while Shanghai was the worst
performer, down almost 1.8% to 2,598, still seeking penetration through the
2,650 resistance that I have pointed to over the last few weeks.
Taiwan has still not descended to fill its two gaps up from the beginning of
the month, which range between 5,614 and 6,256, and (like the Indian market's
gap) followed a politically significant event, in the case of Taiwan the
agreement of the new government permitting capital investment on the island
from the mainland.
Hong Kong's Hang Seng Index, meanwhile, closed the week up 1.6% to 17,062,
filling its gap up from May 18 to 19, but still leaving unfilled a gap up from
the beginning of the month, between 15,521 and 15,869.
The Northeast Asian exchanges, in Japan and South Korea, were docile not only
in volatility but also in proportional move this week. The Nikkei 225 was down
0.4% to 9,226 and preparing to challenge again its secondary descending-tops
downtrend established in mid-2008, after its first and unsuccessful challenge
earlier this month, an attempt vitiated by a still unfilled gap up from the
beginning of April, between 8,355 and 8,450.
South Korea's KOSPI, on the other hand, closed at its intraday high on the
first three days of the week but including a gap up on Monday-Tuesday from
1,387 to 1,411, finishing Friday up 0.9% for the week but closing at 1,404,
that is, on weakness and without filling this gap and also failing to punch
through the 1,430s, where its Wednesday advance was halted by an established
medium-term resistance inherited from September 2008 that stretches up to 1,500
and upon which is overlain a further band of resistance stretching up from
there up to 1,600.
Finally, neither did Australia's All Ordinaries Index fill its own
Monday-Tuesday gap up, spending the week trying to penetrate 3,900 before
falling back and closing Friday at 3,755, down 0.1% on the week. The New
Zealand 50 Index Gross was perhaps the only exchange whose weakness has been
manifest early enough to erase its gap up from Monday-Tuesday, closing Friday
at 2,760, down 1.1% for the week and nowhere near challenging its principal
intermediate-term resistance near 3,000.
The multiplication of gaps in the Asian region suggests that the present
medium-term advance is relatively close to exhaustion, and that retracements
are due that will test recently established supports and necessarily seek to
fill the aforesaid gaps.
Dr Robert 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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