MARKET RAP The East, no the
West, is (in the) red By R M
Cutler
MONTREAL - Two weeks ago, three
different patterns could be detected among the
principal equity indexes on the main Asian stock
market exchanges, but the week now ending has been
one with one major pattern with a few
nonconformists.
The pattern, if last
Friday's trading is included, is characterized by
a weak upward trend of between zero and 2% through
Tuesday's close, followed by a strong spike
upwards at the Wednesday open and even-tempered
movement further upwards throughout the day, with
a continuing mild but constant uptrend on Thursday
but concluding with an almost total lack of
movement this Friday - at least so far.
I
include last Friday in the analysis both because
this column
goes
to bed before the end of Friday trading in parts
of Asia (Mumbai has still not lunched), and
because this week the Shanghai, Hong Kong and
Taiwan exchanges are closed all day Friday for the
Ching Ming Festival.
By coincidence,
Shanghai, Hong Kong and Taiwan are three of the
four exchanges not sharing, each for different
reasons, in the common pattern summarized above.
(The fourth was India.) The exchanges that did
share it are those in South Korea, Singapore,
Japan and Australia.
What was the reason
for the spike at the Wednesday open? As one might
suspect, New York is the origin. Market sentiment
interpreted the Swiss bank UBS's writedown of
US$19 billion, connected with the unfolding
subprime debacle, as a sign of the beginning of
the end rather than as a glimpse of the iceberg
beyond the tip.
Despite the fact that the
bank announced it would countervail its
first-quarter net loss of over $12 billion by
seeking $15 billion in new capital, likely
requiring a new share issue and thus in fact the
dilution of the value of existing shares, UBS
shares rose 12% that day in Zurich. Let the reader
judge whether this is a marker of self-delusive
irrationality.
Asian financials, which
earlier this year had led the New York markets
down when they cracked under the combined fear of
subprime exposure and the prospect of a US
recession, thereupon nevertheless led their own
markets higher and those markets responded. Yet it
is noteworthy that the early-Wednesday upward
spike accounted for well over half the week's
gains in Singapore, Japan and Australia, and
nearly two-thirds in South Korea.
Hong
Kong, one of the nonconformists to the general
pattern, was in fact the strongest market in the
period, up 5.3% on the week (from the open on
Friday, March 28), but that spike accounted for
six-sevenths (ie, over 82%) of those gains. Taiwan
closed mainly even on the week despite a 1.4%
spike (the smallest of all major exchanges), while
Shanghai’s 2% boost was not enough to keep it from
closing the week down 1.5%.
India shared
this problem. Mumbai received a 4% boost at the
Wednesday open, but by the middle of this Friday
trading day, it has yet again plunged
significantly under the critical 15,800 level. The
spike lifted Mumbai above that resistance on
Wednesday but it closed below and was unable to
sustain an intraday rally over the level on
Thursday. Market tone is now desultory.
If
the collective wisdom in New York had one good
explanation for the irrational behavior at the
Wednesday open, it had two irrational explanations
for the good behavior that followed. One was
credulous acceptance of Federal Reserve chairman
Ben Bernanke's defense, before a Congressional
committee, of the decision to help JP Morgan Chase
buy Bear Stearns, as "not a bailout" (which is
strictly true but really beside the point).
The other was the manic phase of a
manic-depressive week awaiting the release, on
Friday morning New York time an hour before
markets open, of the nonfarm payrolls and
unemployment rate figures for March. Less
significant but related statistics from different
sources released during the week were subjected to
intensive interpretation, but the best that could
be said of them was that they could not in the end
be taken as portents of things to come on Friday
morning and (inconsistently with the foregoing, of
course) at least did not validate the worst fears.
The important new figures, which will be
published roughly six hours after the present
column is published and may well be available as
you read these words, have the potential to incite
a new daylong mini-panic but, as unfavorable as
they may be, they are unlikely to provide an
argument that will close discussion on the
question of a US recession.
Perhaps it
would be a step forward if they were bad enough to
force debate into the open, over whether the US
recession will be long and deep or short and
shallow. That would allow the ventilation of
studies of industrial demand suggesting that the
recent run-up in commodity prices, for puncturing
which Bernanke was briefly hailed before they
largely recovered relatively quickly (the precious
metals being a temporary exception for technical
reasons), was not due mainly to speculation.
The price increases recently forced on
China by its raw and semifinished materials
suppliers could then be introduced to complete the
circle integrating into the debate Asian
extractive industry, and also consumer and capital
goods production. That way, we would all get a
better idea of where Asian equity markets stand in
the mix, not to mention prospects for inflation in
countries importing those goods. The telling sign,
as always, will come when such issues reach the
popular press.
R M Cutler
<rmc@alum.mit.edu> is a Canadian
international affairs analyst.
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