MONTREAL - Every major Asian equities market is closing the week down, and not
just a little. The figures, and note the negative signs, are: New Zealand
-4.0%; Tokyo, -4.4%; Singapore and Australia -4.5%; Seoul -5.0%, Hong Kong
-6.4%; Taiwan -7.5%; and Shanghai no less than -12.3%. Some of these markets
are still open as this article is written, so the decimals may change slightly
before the final bells, but the trends are all there.
What accounts for the slaughter? As usual, the answer varies across the
markets, but what is clear is that a number of sectors took hits for different
reasons. Shipping companies, for example, which like many transportation issues
have been robust lately, took big hits as transport rates caved.
The Baltic Dry Index, which has become the international
standard for independent freight market information (costs for transport of
bulk commodities), fell 12.1% from Monday through Thursday and 8.7% on Thursday
alone. This move hit Japan and South Korea, among others. It was also enough to
knock the Dow Jones Transportation Index in New York 7.5% off its all-time high
a week after this was reached last Thursday.
Tuesday was the day of the worst carnage, highlighted by Shanghai's 7.7%
plummet back to the 3,000-3,100 range in response to the government's raising
the level of deposits that banks must keep on hand, representing a fiscal
tightening. The index fell below this level the very next day, a danger I
pointed out two
months ago after the index gapped up 20% to 3,600 in the course of
48-72 hours (after the government lowered the stamp tax on securities sales).
Then it bounced slightly off 2,900 and is now churning between 2,900 and 3,000.
Recall that the 2,900-3,000 range, dating from early 2007, is the last support
on the downside before the 2,100-2,200 level, where a respectable resistance
was established between autumn 2000 and summer 2001. And the intraday trend on
Friday is not favorable.
The Taiwan market, where the recent rise was predicated on increased trade with
China under the new and less confrontational president in Taipei, was down
every day with the exception of a slight gain on Friday, when it bounced off an
important support from early 2007 just above 8,000 which has held once before
but was also penetrated on the downside before recovering earlier this year.
As mentioned above, Hong Kong was down strongly also, and could have been down
still more had its markets not been closed on Monday.
Financial groups in several Asian countries were downgraded by ratings and
investment agencies, so the sector got hit all around, hurting Australia and
Singapore in addition to most of the markets already named. Seoul followed
lower for all reasons already mentioned, with increased volatility as
bargain-hunters appeared and then disappeared in the face of unrelenting
negative sentiment.
The stronger US dollar hurt many metals, mining and energy stocks, although BHP
Billiton and Rio Tinto both advanced in Australia. Investors have been getting
out of Asian bonds for some time, and this pace picked up further this week.
Mumbai opened on Friday in positive territory but is now headed down. It is the
only one with a chance to finish the week in positive territory, but this will
be difficult since it is down 2.1% on the week through the Thursday close and
is struggling after the Friday open.
The BSE Sensex 30 and the Nifty tracked each other exceptionally closely this
week, meaning that they together continue to confirm each other's recent
weakness, as I pointed out last week, for the first time in quite a while. The
increased energy prices and tighter credit imposed in India over the past week
now weigh heavily on the market.
Central bankers want a strong dollar, but a strong dollar will hurt those few
sectors that have lately maintained what buoyancy the world equity markets
still display. And the solvency crisis of financial institutions, which these
bankers proclaim to have resolved, is really only waiting to manifest in a new
form.
Along with the North American markets, both the US and Canada, and several of
the European bourses, China and India are slipping or have slipped out of
long-term up-trend channels. Overall volatility across the globe has been
relatively low although rising significantly in the current week.
The recent holding pattern in the Asian equity markets was broken decisively on
the downside this week. The Chinese and Indian indices have not emerged
favorably from ill-boding technical formations but they are not yet condemned
to fall further, at least not in the near future. At a minimum, however, upside
expectations need serious rethinking and probably readjustment as to magnitude
if not also as to direction.
R M Cutler(rmc@alum.mit.edu and http://www.robertcutler.org) is a
Canadian international affairs specialist.
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