MARKET RAP India and China on
different routes down By R M
Cutler
MONTREAL - Most Asian equity
indexes followed a similar pattern of being down
slightly on Monday and Tuesday, opening and
closing higher on Wednesday, and declining back to
Monday levels or below on Thursday. Indeed at the
opening on Friday 14, the major indexes were down
5% from their close the previous Friday,
continuing the day mostly in slightly negative
territory despite Wall Street's recovery on
Thursday 13.
As is often the case, the
differences in variation around this general
pattern are instructive. The most volatile were
Hong Kong's Hang Seng Index and India's BSE Sensex
30, both of which on Wednesday reached levels 6%
above their Monday open, only to close the week
rather lower. This week's column
looks at
conditions in those markets more closely.
Mumbai's BSE Sensex 30 has continued its
march downward from the irrationally high levels
to which it had been raised late last year and
early this year. Industrial output in India is
down, foreign institutions that had been buyers
have turned into sellers, and domestic funds are
offering no support. The BSE Sensex 30 closed
Thursday below 15,400, breaking through an
important support level around 15,800 established
separately in late July and early September last
year, and which thus antedates its phenomenal rise
over the last two quarters.
A number of
leading companies in India (including DLF, Power
Grid, Steel Authority, Tata Steel, and HDFC)
closed down over 10% on Thursday alone, and
general market breadth has been quite weak. As
this column goes to press in the midst of the
Mumbai trading day, the index is trying to recoup
its loss and move back over the 15,800 support but
it is finding significant resistance to this and,
in the absence of significant volume, is unlikely
to overcome the resistance.
The next
important support for the BSE Sensex 30 is just
below 14,500, with further resistance points,
although they are more minor ones, staggered all
the way down to 14,200. Local observers in India
believe that a decline to this level in the broad
market is entirely plausible in the absence of
some global driver upwards. The next support after
this range, established as long ago as early May
2006, is at 12,500, or down fully 35% from its
all-time high established only five months ago.
The partially convertible Indian rupee,
meanwhile, continues its weakness relative even to
the historic weakness of the US dollar. Its loss
of 1.3% against the American currency for the week
ending Friday 7 was its biggest five-day decline
since mid-August and its lowest close since
mid-September. This week, that support has held,
although at the open Friday 14 the rates were
continuing to challenge the important support
level at 2.48 US cents to the rupee established
last summer.
Over in Hong Kong, the Hang
Seng Index has this week been challenging its
January low and, insofar as its close Friday 14 is
statistically indistinguishable from its open on
Monday 10, the outcome is so far unclear.
In contrast to Mumbai, where the BSE
Sensex 30 has found some support at its summer
2007 highs, Hong Kong has already broken downward
through that major support at 23,500, and is now
testing a secondary support level from that period
just above 22,000.
It is sometimes
instructive to look at the Hang Seng Index
together in context with the Shanghai and Taipei
exchanges. If Hong Kong was unchanged on the week,
then the Shanghai Composite Index was lower by 6%
while the Taipei TSEC Weighted Index closed down
less than 3%. Especially since October, Hong Kong
has also regularly outperformed Shanghai in
percentage terms, even though the overall patterns
of the two often track together.
That
pattern is in line with trends established as
early as July 2007, since which time Taipei has
underperformed Hong Kong (which it had, until
then, followed in lockstep), while Shanghai has
more or less tracked Mumbai. As for the Seoul
KOSPI Composite Index since summer 2007, its
performance in percentage terms has been between
the Hong Kong and Taipei markets, but it has
tended since the beginning of the current year to
track Taipei more closely.
It is of
interest to note that summer 2007 (in this case,
June) is also the date of an observable disconnect
between the Hong Kong index on the one hand and,
on the other hand, the Australian All Ordinaries
and the Canadian S&P/TSX (which, as noted here
last week, share a strong weighting in favor of
natural-resources industries due to the sectoral
structure of the national economies).
Indeed, summer 2007 (in this case, August)
also marks the beginning of the Nikkei 225's
recent outperformance of the Australian and Hong
Kong markets. While I hesitate to use the term
"decoupling", because this term denotes a process
rather than a dichotomy between "coupled" and
"decoupled" states, it is clear that we live in
interesting times.
R M Cutler
http://www.robertcutler.org is a Canadian
international affairs analyst.
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