MARKET RAP Hong Kong feels Beijing chill
By R M Cutler
MONTREAL - The Chinese government's indications that it wants to cool potential
overheating in the economy through a series of banking and financial moves
helped to make the Shanghai exchange the region's most volatile this week.
Greater China exchanges were three of the four most volatile in the region.
More surprisingly, two were among the three biggest gainers and one - not
Shanghai - was the biggest loser.
The Shanghai Stock Exchange Composite (SSEC) index suffered a 3.1% loss on
Wednesday following the government's measures
Still, the Shanghai exchange managed a 0.6% gain on the week by mid-afternoon
Friday local time to 3,214 after its dip to 3,173 on Wednesday. The SSEC is now
at a critical juncture. Following its knockdowns from its exaggerated intraday
highs on the first three days of the week, it is now just above the upper bound
of an old trading range. Short-term technical indicators are neutral and the
Friday level is that of its 50-day moving average.
Last summer, when hot money drove it to the mid-3,400s, it really should never
have passed the mid-3,250s, and now it looks to be settling between 3,200 and
3,300 before deciding whether to take the slowdown measures seriously. The
recent rises in stocks of real estate developers suggests it may not, although
mutual fund managers have turned bearish on the sector.
The country's statistical agency reported that foreign direct investment in
December 2008 was twice the level of the same period in 2008. There are still
good chances that more foreign hot money will sooner or later gravitate to the
Shanghai markets.
The Taiwan Stock Exchange Composite (TSEC) was up 0.2% from last Friday's close
to 8,357. Further advances may be in store, insofar as indicators of being
overbought have backed off a bit in the last week or two, but favorable
short-term indicators have been becoming attenuated.
The Hang Seng Index (HSI) in Hong Kong, however, lost 2.84% on the week to
21,664 by midday Friday local time and remains within the trading range that it
has occupied for the last four months. Short-term indicators are mixed.
Together with these, decreasing volume suggests that it may not muster another
run at the top of trading range for some time.
The Australasian exchanges were also back in character, as Australia and New
Zealand were the two least volatile of the week and two of three worst
performers. Singapore this week reverted from the South/Southeast Asian to the
Australasian pattern that has been dominant in its behavior in recent months.
The Australia All Ordinaries Index was off 0.6% to 4,929, down from its attempt
last week to break out through the 5,000 level. Short-term indicators have
grown weaker over the course of the week as well. Some further weakness would
not be surprising, although there are now supports at 3,860 and 4,750.
The New Zealand 50 Index Gross was off 1.5% to 3,259, threatening to redescend
under the upper bound of its five-month trading range yet still looking
overbought according to short-term technical indicators. Other short-term
indicators have just turned negative, marking a convergence between Sydney and
Wellington.
The Straits Times Index (STI) in Singapore closely followed Australia and New
Zealand, being the fourth least volatile and the fourth worst performer of the
week. Down 0.2% to 2,911 in mid-afternoon Friday local time, it is moderating
its breakout to the upside of its recent trading range and is already back
under a double-high. A support at 2,800 will be important for determining its
future course.
The Nikkei 225 was the standout performer this week, even though it had only
average volatility, closing up 1.7% to 10,982, led by the banking sector while
steelmakers and shippers suffered. This trend is technically a breakout from
the recent trading range, but there is no confirmation of it. Moreover,
short-term indicators have turned from very positive to near neutral.
The other Northeast Asian exchange, in Seoul, treaded water. The KOSPI fell
0.1% on the week to finish at 1,693, still well within its five-month trading
range and on a bit of a knife's edge rose, weakening towards the close, while
short-term technical indicators are slightly positive, although not enough so
to instill confidence.
Finally, in Mumbai, the BSE Sensex 30 was up 0.4% as of mid-afternoon Friday
local time but, like other indexes in Asia, with increasing weakness that would
make it unnatural for further advances to pile themselves so soon upon recent
strength now dissipated. The Sensex's level at 17,604 is still below the
highest level of its recent breakout, which remains unconfirmed. Indeed, the
previous trading range's upper bound is less than 2% above the current level;
significantly, the broader-based Nifty is not in any better situation.
The Asian equity markets thus saw something of a return to form this week as
sub-regions and individual national exchanges within sub-regions returned to
established characteristic behavior patterns, with a few interesting exceptions
as noted.
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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