MONTREAL - Asian stocks continued lower this week, marking the fourth
consecutive week of losses more or less across the board. The MSCI Asia-Pacific
Index has completed an ominous head-and-shoulders formation, auguring further
declines, and finds itself now at its worst level since mid-summer 2006 yet
vulnerable to at least another 6% decline as at the present level the index
lacks a technical support.
Analysts attribute this general weakness to the two usual suspects - renewed
worry about the credit markets and oil price jitters - to which they now add a
fall in consumer spending resulting from increasing inflation.
European shares are weak, and it is almost amazing that Wall
Street has so far survived so well against a background of no good news to
speak of at all. When the lackluster summer rally wears off as autumn begins in
a few weeks, the US market will suffer another crisis of confidence as more
debt dominoes fall and a general awareness spreads that there is no recovery
for which investors have been hoping against hope.
As one New York economic analyst put it in May, people looking for signs of a
recovery or even mere muddling-through in the second half of the year will
discover that "there isn't any there there".
Even the closure of the Baku-Tbilisi-Ceyhan pipeline in the South Caucasus,
which daily carries 1% of world oil consumption, has not been enough to make
the price of oil spike. Imagine the reaction if that had happened a few months
ago. This is because awareness of a world economic slowdown has finally hit the
bigger traders, if not the smaller ones, and anticipated decreases in demand
are now factored into the spot price. Both industrial and precious metals have
taken strong hits in the last few weeks as well. With that as preface, let me
turn now to the weekly review of Asian markets in greater detail.
There is not a great deal to write that habitual readers of this column have
not already read here over the past several weeks. The main lines of analysis
and prognostications for the near-term future set out in June and July remain
well established. Nevertheless, it is called for to indicate some nuances due
to recent movements, and also to point out some more significant dangers that
have newly appeared.
In particular, the "trifurcation" of the Asian arena into three groups of
markets, about which I have written a fair amount lately (see for example
Forks in the markets, Asia Times Online, July 24, 2008) is this week
reinforced again after a few variations appeared last week. Indeed, the "return
to form" is remarkable.
Once again, Australia and New Zealand are both the least volatile as well as
the best performers, although this week the latter merely means that they each
lost only 0.6% during a time when all other markets in the region were down
more strongly. Still it is remarkable that this duo were the two winning-est
exchanges on three of the five days this week.
But Wellington's NZX 50 Index Gross still continued lower against its
descending-tops trend pointed out last week and is en route to challenging its
3,200 support level from the upside, without clear hope of a positive
resolution, while Australia's All Ordinaries Index continues to be stuck in a
4,900-5,100 trade range that looks increasingly like quicksand the more it
spends in the lower half of the range, a pattern still closely tracked in a
confirmatory manner by the S&P/ASX 300 index.
Singapore was, next to those two, the least volatile exchange in the region but
still fell straight through the week from its Monday open at the important
2,800 support level. It closed Friday in the low 2,700s. As mentioned last
week, the next supports for the Straits Times Index are in the low 2,600s and
then the low 2,300s. It is difficult to find reasons to believe in the
resilience of this index at present.
Singapore would also have been the third least loser this week (down 2.9%) if
not for a 3.2% gain in Tokyo on Tuesday, giving that honor to the Nikkei 225,
down 1.3% on the week. But this is no cause for joy.
The Nikkei has now definitely broken below its support in the low 13,000s and,
having closed out the week in the mid-12,600s, has little choice but to
continue on downwards at least in the near-term future, hoping that the 12,000
level established in April 2004 and confirmed in April 2005, but tested only
once since then five months ago, might still hold.
After 12,000 there is a support at 11,000, and a lot of work woven between the
two levels through 2004 and the first half of 2005, giving some hope that this
wide band might act like a net and catch it, much as the 4,900-5,100 range has
done for the Australian All Ordinaries index, at least so far.
In India, the BSE Sensex 30, which broke above the 15,100 resistance two weeks
ago then fell back to its 14,800 support, continued to wander around the level
for the first of this week before taking a 3.0% hit on Thursday, confirming the
whole pop last week as a gap-up now relinquished.
At mid-afternoon local time Friday, this index climbed to around 14,400
from its previously established 14,100 support, a little
away from its trading range between that level and 13,400. The Nifty
was having a better week until the last two days, which saw it bang its head
against its descending-tops trend line established in January and May this
year. On Thursday it was down 3.6% and it is spending Friday getting its
footing again.
Finally, the two most volatile exchanges this week were - no surprise -
Shanghai and Taiwan in that order. (Hong Kong, which often moves together with
them, had another weather-abbreviated week, closing all day Friday due to the
threat from Typhoon Nuri.)
Unusually, South Korea was the fourth-most volatile Asian exchange and, still
more notably, the biggest loser, down 5.6% on the week. As I hinted last week,
something like this could have been expected when it failed to punch through a
double-resistance at the 1,600 level. The KOSPI closed the week just below
1,500; any support at this level is short-term, dating only from last month,
although there is good medium-term support in the 1,400-1,450 range, with the
low 1,200s as the next stop if needed.
It is no surprise that Shanghai's index continues to languish; indeed, the
surprise is that it was down only 2.0% this week to around 2,400 and, to repeat
previous analyses, may well have to test 2,100 before mounting any attempt at a
recovery.
Finally, the movement on the Taiwan exchange this week is small but
significant. The TSEC, down only 1.3% on the week, nevertheless closed out at
6,912. This bears very close watching because over the past month the level
around 7,000 (established as long ago as 1998 and confirmed in 2004) has
provided strong support against the downtrend that has been evident since
October 2007 and especially since June 2008.
On Friday the Taiwan index touched down to 6,840 before recovering. This is not
necessarily cause for alarm. In mid-July, the index closed just above 6,700,
and again just above 6,800 two-and-a-half weeks ago. The near-term resistance
on the upside is established at 7,300. Taiwan has suffered lately from the fear
that economic slowdown may make trade with the mainland less dynamic than had
been hoped after the recent presidential elections in Taipei. But also, from a
purely technical standpoint, the oscillations show how important the near-term
moves will be for the Taiwan market and, since this is taken to be one of the
more dynamic Asian equity exchanges, for Asia itself as a broader indicator.
The key question here is: having held the 6,700 level only 36 days ago
(calendar, not trading, days) and the 6,800 level only 18 days ago, will the
index now hold the 6,900 level? I will return to this matter next week after
more evidence is in.
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