MONTREAL - Asian equity markets this week deepened the pause in recent advance
that they began last week even while Shanghai continued to be the strongest
performer for the fourth week running on the basis of unexpectedly strong
economic statistics. Taiwan was the second strongest for the second successive
week running.
The MSCI Asia Pacific Index fell 3.1% to 100.6 from 102.8 while the ex-Japan
index was off 2.2% to 316.0 from 323.0. India and Japan accounted for much of
the loss, although Hong Kong also had a nontrivial down week. Bloomberg News
reports that Credit Suisse expects the current dip to last for as long as three
months, regards it as a buying opportunity and is beginning to recommend
riskier assets.
That advice is based upon the optimistic assumption that the third quarter will
see the end of the global recession, implicitly tracing a "V" rather than a "W"
or an "L". JP Morgan Chase shares the view that low interest rates and
worldwide government fiscal stimuli will lead to a rebound in the global
economy. George Soros is reported to believe that China will lead the pack,
with reference to recovery from the global financial crisis.
The Chinese equity market has certainly led the pack over the past month, with
the Shanghai Stock Exchange Composite (SSEC) showing unexpected strength above
the 3,000 level this week closing at 3,140, up about 1.6% since last Friday’s
close. This places it almost exactly at the resistance interval from April 2008
to which I pointed last week, still approaching from the downside.
The SSEC has already tried once, on Monday and Tuesday this week, to penetrate
that level. A series of short- and medium-term technical indicators did turn
less favorable on Wednesday. The SSEC has also popped, to the upside, out of
the uptrend channel it has been following since March. It would be reasonable
for the index now to fall a bit so as to test the ascending-tops line of that
uptrend and decide whether or not it has become a bit overextended.
If the SSEC succeeds in continuing its advance, then that would mean that the
uptrend should be marked as beginning last November rather than in March of
this year. In that event, the SSEC would sooner rather than later run into the
minimum of its gap-down from 3,313 to 3,215 early June 2008. It is worth
remembering that the top 20% of that range corresponds to an interval within
the still unfilled gap-up from April 2008.
Taiwan was up slightly less than 1.6% and closing at 6,770, apparently
preparing to mount a challenge to the 7,000 level where its advance was blocked
a month ago. Technical indicators are in fact mildly positive in the short
term. The third Greater China exchange, Hong Kong, was not so lucky, coming in
with the week's third-worst performance on the week's second-highest
volatility. The Hang Seng Index was down about 2.5% on the week at 17,708, with
overall slightly negative technicals in the short term. Crucially, the index is
now at the bottom of its trading range since the end of June, balanced also on
two separate short-term supports from May. Next week's performance will tell us
whether the index stays in the trading range; if not, then the just-mentioned
supports will turn into resistances.
Despite all the interest in the Greater Chinese markets, the headline story in
Asian equities this week was the 5.8% drop on Monday in India's BSE Sensex 30,
leading to a decline that by midday Friday local time had reached 7.5%. This
has taken the index down to the region around 13,800, within striking distance
of the upper bound, at 13,479, of its mid-May gap-up from 12,218 following
Prime Minister Manmohan Singh's victory in the recent elections for the Lok
Sabha (lower house of parliament).
The narrative provided by the press is that business circles were disappointed
in the budget deficit that the government foresees as necessary to reestablish
the economic growth rates seen earlier in the decade before the ongoing global
recession. There is undoubtedly some truth to that on the psychological level,
but the event was just a trigger for behavior that was looking for an excuse to
manifest.
The Sensex had been stalled in a range around 15,000 for the previous five
weeks and had to consolidate its phenomenal gains over the past four months.
This was foreseeable, as was its current halt at the top of its 13,300-13,700
support range (see Indian
stock surge false guide to economy, Asia Times Online, May 22, 2009).
Indeed, while the Sensex may still hem and haw over the short term, a series of
short- and medium-term technical indicators have all turned negative this week.
The broader-based Nifty has confirmed some but not all of those indicators; it
has contradicted none of them.
The last major story in Asian markets this week was the weakness in Japan,
where technical indicators have been negative since the last week of June and
where this week the Nikkei 225 closed off 5.4% 9,287. After a two-month attempt
to leave behind the medium-term trading range of which the upper bound was
first traced nine months ago, the Nikkei has now slipped back inside that range
after failing to confirm its first successful test, three weeks ago, of the top
of the range as a support from the upside. The next supports are at 9,240, and
8,850, then followed by a more diffuse interval between 8,550 and 8,600.
Beyond these stories this week, there is not much else to say. India's major
companion exchange in the South/Southeast Asian theater, Singapore, closed the
period up 0.2% at the 2,304 level, having tested on Wednesday for the second
time successfully its short-term support at 2,241 but with technical indicators
still generally negative.
Likewise, Japan's counterpart in Northeast Asia, South Korea, was not much
changed, up 0.6% on the week to 1,429, although with its technical indicators
in better shape than Singapore's, indeed consistently if mildly positive, if
not strongly enough so to make inevitable its immediate conquest of the
resistance through which it has been trying to break in fact since the
beginning of May. This would be because that resistance has been well
established not only in the medium term, since September-October last year, but
also in the long-term, through the first half of 2006.
Australia and New Zealand performed in the middle of the pack this week,
meaning that they were each down between 0.8% and 0.9% on average volatility
and behaving in such a manner as to require no emendation of comment from
recent weeks. In short, the general Asia-wide breather in the equity markets
looks set to continue next week; even if a couple of exchanges seem still to
have some energy left, their endurance will soon be challenged.
DrRobert 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.
R M Cutler (http://www.robertcutler.org) is a Canadian international
affairs specialist.
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