MONTREAL - Asian equity markets generally stumbled this week despite good
performances in Shanghai and Taiwan (the two best in the period) and a moderate
gain in Seoul. The MSCI Asia Pacific Index was hemming and hawing around 103.0
late in the day, down fractionally from last Friday’s close at 103.7, while its
ex-Japan analogue registered 323.5, barely different from 324.1 a week earlier.
China's benchmark index Shanghai Stock Exchange Composite (SSEC) showed
unexpected strength, rising every day but Tuesday. It was twice the week's best
performer and twice its second best, finding itself just below 3,070 in late
afternoon Friday local time and up no less than 4.8% from a week ago, mainly on
the back of surprisingly strong industrial production and various purchasing
managers indices (PMIs). The SSEC index has impressively maintained its steady
uptrend since the beginning of the calendar year. If it makes it through the
resistance in the low 3,100s inherited from April 2008, then it will next
confront the double-gap in the 3,300s inherited from that period and from June
that same year.
The Taiwan Stock Exchange Composite (TSEC) was, as expected, up on the week. It
gained 3.1% to 6,665, recovering from a short-term low of 6,145 two weeks ago
and, if it can overcome the short-term resistance at the very low it occupies
now, would look set to mount another assault on the 7,000 level. That level is
where its advance was halted at the beginning of June on the basis of strong
medium-term resistance worked out through July and August last year, itself
surmounted by another resistance level around 7,300 from that same period that
confirmed a long-term local maximum established in early May 2006.
Hong Kong's Hang Seng Index did not share in the good fortune of the other two
Greater China markets, registering the worst performance (at least as of early
afternoon Friday local time) and greatest volatility of any major Asian market.
Although beginning to recover as Friday afternoon started, it was already down
on the week by 2.3% to 18,170 and still within its June trading micro-range
from the high 17,300s to the high 18,800s. It looks possible that the Hang Seng
is seeking to prepare one last attempt to pop up to 20,000, but its failure
already on Tuesday and Thursday (it was closed Wednesday) to surmount the
aforesaid bar in the 18,800s does not inspire confidence.
Shanghai and Taiwan nearly matched Hong Kong in volatility, placing second and
fourth respectively this week by that metric. Third-most volatile was Mumbai,
where the BSE Sensex 30 was by midday local time Friday nearly unchanged on the
week, despite wide swings on previous days, at 14,735 or down 0.2% from last
week's close.
The Sensex remains in the trading range established since the mid-May gap-up on
election results, a range extending from the gap's top at 13,479 up to the
15,411 level attained just over three weeks ago, level where medium-term
resistances are to be found from last August and March a year ago and even
summer 2007 (although the last of these is more diffuse). The Indian exchanges
have been marking time awaiting the July 6 announcement of the government
budget to see whether anticipations based on the Congress Party's striking win
in the May elections are matched by the first significant policy figures to be
committed to paper.
Singapore outperformed Mumbai this week and on lower volatility, although the
statistically significant differences were not radically divergent in the
period's generalized (Shanghai and Taiwan) doldrums. The Straits Times Index
was down 0.8% on the week to 2,300 in late mid-afternoon local time Friday, but
with a tendency in favor of some further recovery for the remainder of the day.
Still, absent Mumbai's gap-up in May, the two indices have tracked one another
relatively closely.
Singapore, however, is tracking back towards the top of its short-term trading
range since early (not mid-) May that stretches from the low 2,100s up to
2,400. (A still shorter-term perspective over the last six weeks marks the
trading range's lower bound at 2,210). Like a number of other Asian exchanges,
Singapore appears to be marking time until making one final push, after which
we may expect a rather longer breather following the remarkable generalized
recovery since the March lows.
The bellwether exchanges in Tokyo and Seoul conform to that pattern, continuing
to exhibit average volatility and average movement, although South Korea's
KOSPI was the third best winner on the week, after Shanghai and Taiwan, up
finishing up 1.9% to 1,420. Since the end of April, this index has occupied the
extremely narrow trading range from 1,364 to 1,429, at top of which it has been
constrained by significant technical resistances dating from September 2007,
somewhat similar to the Hang Seng's chart in Hong Kong's although these
similarities should not be exaggerated.
The Nikkei 225, by contrast was down 0.7% to 9,816 with a chart structure even
more like the KOSPI's than the Hang Seng has been. Press commentary attributes
this performance to a slowing of retail sales in Japanese stocks, in top of the
poor US employment figures released this week and a consequent fall in
commodity prices. The longer-term prospect for the Nikkei chart, however, shows
significant resistances from the whole 2001-2005 period stair-stepped from
10,000 up to 11,750 even if the index succeeds in surmounting its current
range.
Finally, New Zealand and Australia, as is frequently the case, finished out the
week as the region's least volatile markets, Wellington being the second-worst
performer while Australia lost 1.9% despite finishing in the middle of the pack
this week. The Australia All Ordinaries Index in fact made most of that loss on
Friday, closing at 3,827 still well within its 3,700-4,050 trading range
established in April, although mild ascending-bottoms and ascending-tops lines
also make it possible to interpret a slight uptrend of the general channel.
This market, however, is reaching the likely extent of its current advance, if
it has not already done so.
The unexpectedly strong performance of the Shanghai exchange has led contrarily
to fears and speculation about the Chinese economy being overheated and, in
consequence, the possible fate of the supposed world proto-recovery should this
be a false dawn. A spate of journalistic surveys touting the future of Shanghai
as a global financial center (twinned with Hong Kong and challenging New York
and London) may account partly for the failure of interest in Chinese equities
to flag. Companies are still interested in locating regional offices there.
Demand for Chinese production is not recovering in the 30 industrialized
countries that make up the Organization for Economic Cooperation and
Development and looks unlikely to recover anytime soon. However, it cannot be
ruled out that that the Chinese government's policies on regulating investment
instruments will, intentionally or not, create a growing disconnect between
Shanghai's financial market and the real economy.
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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