MONTREAL - Asian equity markets this week deepened last week's losses,
confirming that breakouts three weeks ago from medium-term trading ranges were
"a long-term last gasp before a more substantial correction prepares the ground
for subsequent longer-term advances" as indicated in my January 9 "Rap" column.
The MSCI Asia Pacific Index fell to 117.50 in early afternoon local time in
Tokyo, down 4% on the week, its largest weekly decline in 10 months, and down
7.3% over two weeks. Only two exchanges on two separate days failed to decline:
on Tuesday, New Zealand rose 0.6% and in mid-afternoon Friday Shanghai was up
0.1%. Wellington, down 0.8% at the end of trading Friday, was the only
exchange not to post a weekly loss of over 2.5%.
This week there was a moderate (0.60) rank-order correlation between volatility
and absolute loss. Correspondingly, there was moderate high homogeneity in the
behavior of national equity markets within the individual Asian sub-regional
groups. By and large, these groups followed the characteristic patterns that
this commentary has in the past identified.
So it was that two Greater China exchanges, Taiwan and Shanghai, were the two
most volatile of the week and two of the five largest losers. The Taiwan Stock
Exchange Composite (TSEC) lost 3.9% to 7,617 and is now down 9.1% over two
weeks. It is now testing the local minimum from mid-February 2008, which
confirmed support at this level from chart movement during the first two months
of 2007. There is a separate, much weaker and unconfirmed potential support at
7,474 from early May 2006. Its short-term technical indicators remain negative.
The Shanghai Stock Exchange Composite (SSEC) spent four days this week testing
the 3,000 resistance level to which I have often pointed. It has held up fairly
well for most of this time with intraday lows in the 2,960s on Thursday and
Friday, closing below 2,995 only on Wednesday but weakening in late trading on
Friday to close at 2,989. Its short-term technical indicators also remain
negative.
In the Greater China region, Hong Kong had the mildest week. The Hang Seng
Index (HSI) had been down only 2.5% on the week but then dropped like the
proverbial rock and was down 3.6% on the week in the early afternoon local time
to 19,980 (near its Wednesday intraday low), before recovering to 20,121 at the
close. By a statistical fluke, it is one of the less-volatile exchanges on the
week. Its short-term technical indicators likewise remain negative.
The Northeast Asian exchanges "conformed to type" last week with medium
volatility but important losses on Friday; they ended as two of the three
largest losers on the week. The South Korean exchange was, somewhat
uncharacteristically, the largest loser of all, with Seoul's KOSPI losing
ground every day except on Thursday, breaking down 4.9% on the week following
the overbought signal I flashed last Friday and it finished the week at 1,602,
so as to test the support at that level from March and July 2008, which it
tentatively confirmed two months ago.
However, the KOSPI's short-term technical indicators are unfavorable and the
next support below 1,600 kicks in only in the mid-1,400s. The Nikkei 225 in
Tokyo was down 3.7% on the week to 10,198, with negative forward-looking
short-term technical indicators.
The Australasian indexes also conformed to type, as Sydney and Wellington were
two of the three least volatile of the Asian equity markets. The New Zealand 50
Index Gross (NZX) had the least loss as noted above, while the Australian All
Ordinaries (AORD) had a much larger loss, down 3.7% on the week to 4,596. It is
now at the bottom of the late 2009 trading range from which it broke out to the
upside at the beginning of the year. Short-term technical indicators are
bearish, and if this level fails definitively, then the next real support is in
the high 4,100s.
In South/Southeast Asia, the Straits Times Index (STI) of Singapore was this
week schizophrenic. Sometimes adopting the character of the Australasian
markets, and sometimes that of the Indian exchange, it resembled the latter
insofar as volatility was concerned (and was uncharacteristically the third
most volatile major exchange in Asia); in terms of absolute movement it split
the difference between Wellington and Sydney, posting a third-least-bad
performance, down about 2.8% on the week to 2,750. As throughout the rest of
Asia, the STI's short-term technical indicators are unfavorable.
Finally, the BSE Sensex 30 in Mumbai was recovering on Friday after gapping
down at the open, reaching 16,301 in early afternoon local time but still at
that level down 3.4% since last Friday's close on average volatility. Here,
too, short-term technical indicators are unfavorable.
So in the week now ending, the Asian exchanges accelerated their declines begun
last week, although moderating that acceleration in the last day or two of
trading. The velocity is nevertheless still negative and the short-term
prognosis remains pessimistic across the board. Any continuation early next
week of the moderation evident on Thursday and Friday may well be only a
catching of breath prior to further declines.
Dr Robert M Cutler (http://www.robertcutler.orgeducated 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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