MONTREAL - This was an interesting week in that the nine exchanges reviewed
here showed an extremely high correlation between high volatility and large
downward moves. The MSCI Asia Pacific Index's loss of only 1.2% to 118.27 by
mid-afternoon on Friday in Tokyo masks strong inter-regional stratification and
relatively strong homogeneity within regions.
Most strikingly, the Shanghai and Hong Kong and exchanges were by far the most
volatile in Asia and also the largest losers - the Shanghai Stock Exchange
Composite (SSEC) and Hang Seng Index (HSI) each fell 3.3%; Taiwan, where the
markets were closed Tuesday through Thursday, was the fifth-most volatile and
fourth-largest loser, with the Taiwan Stock Exchange Composite
(TSEC) declining a modest 0.5% to 7,754.
The SSEC was the best performing index in the region on Monday and Tuesday but
was unable to break upwards through its 3,300 resistance level after two days
of trying in the middle of the week and lost heavily from Wednesday onwards to
reach 3,113 at the Friday close. This is right at the support level to which I
pointed earlier this week (see
Blindfolded on a cliff edge, Asia Times Online, December 17, 2009).
Whether it will hold there is another matter; by short-term technical measures,
it has a good chance to do so. Bloomberg News quoted former Morgan Stanley
chief Asian economist Andy Xie as suggesting that the real estate and stock
bubbles in China will not burst until 2011, when he forecasts an acceleration
of inflation.
In Hong Kong, the HSI, at 21,133 at Friday's close, has confirmed its break
below the 50-day moving average although it still has some short-term support
at 20,000 and again at 19,520. Volume, however, has tellingly dropped off over
the last week and a half.
At the other end of the scale, Australia and New Zealand were the two best
gainers of the week while two of the three least volatile. The New Zealand 50
Gross Index (NZX) was up 0.8% to 3,154 while the Australia All Ordinaries
gained 0.4% to 4,671. Wellington's short-term technical indicators are neutral
as it remains in the middle of its five-month trading range. Sydney's are
slightly negative but improving; it faces a test this coming week to decide on
which side of the median support of its three-month trading range it wishes to
continue trading for the near-term future.
Japan's Nikkei 225 Index rose 0.3% to 10,142 with contradictory short-term
indicators, looking oversold in the medium term but still strong in the
short-term technical indicators, despite the inability, at least so far, to
break through the short-term resistance at 10,362.
The other Northeast Asia index, the KOSPI in Seoul, was down 0.5% to 1,647 with
rather good but slightly fading short-term technical indicators, and with its
next major test to the upside at the top of its five-month trading range at
1,711. Thus the Northeast Asia sub-region lost the pan-Asian leadership that it
had held over the past four weeks but still bested its erstwhile co-leader, the
Greater China sub-region.
If the whole region had a sub-regional leader this week, it would have to be
Australasia, however modest that leadership may be, as Singapore once again
joined Australia and New Zealand rather than India in its pattern, turning in
the second-least volatile and fourth-best performance in the week.
The Straits Times Index (STI) continues to outperform many expectations. It
closed the week nearly unchanged at 2,799, near the top of its four-month
trading range, with increasing volume, not looking overbought and with
short-term technical indicators on the whole quite positive.
In Mumbai, the BSE Sensex 30 continued to stagnate to 16,854 just after midday
Friday local time, down 1.6% on the week, and unable to muster the momentum
even to make another try at penetrating the top of its medium-term trading
range at 17,322. Somewhat oversold by now, it nevertheless has mainly negative
short-term technical indicators and is at the cusp of penetrating its 50-day
moving average to the downside.
If there is one overall impression characterizing the Asian equity markets this
week, it is of flagging momentum. Some markets in all the sub-regions remain
incapable of penetrating their medium-term trading ranges to the upside, and
many of the others are moving with various speeds towards minor breakdowns that
could cascade. The best-performing markets these days are doing little more
than holding their own, and they have no broader influence to affect other
markets more generally.
Dr Robert 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.
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