MONTREAL - Asian equities notched their third consecutive weekly gain over the
past five days. Commentators grasping at straws to explain the market behavior
pointed to the fact that pharmaceuticals were the leading sector, saying that
this was in sympathy with the same sector that also led the New York markets
higher, influenced by the increasing impression that health care reform is dead
in the US Congress.
They also pointed to speculation that the Bank of Japan will add funds to the
country's financial system. Analysis by Bloomberg News shows Asian shares now
trade at 19 times estimated earnings, compared with 15 for the Standard &
Poor's 500 Index in the US and 13 for the Stoxx Europe 600.
As of early Friday afternoon Tokyo time, the MSCI Asia Pacific
Index was up 2.2% on the week to 123.01 but on volume that was the lowest in
nearly a month and with short-term technical indicators suggesting an
overbought situation. Among the national equity indexes reviewed here, only
Japan and Singapore exceeded the gain marked by the MSCI index while Hong Kong
almost did so. All the others were up less than 1.6%, although there was not a
loser in the bunch until Shanghai fell off a small cliff after lunch on Friday.
The correlation between volatility and gains this week was a moderate +0.43,
higher than last week but not near the heights that mark significant market
moves cascading through the region. The only sub-regional conformity to
historic pattern was in the behavior of the Australasian exchanges, which were
the two least volatile and two of the three smallest gainers.
The Australian All Ordinaries Index was up 1.1% to 4,829 with favorable
forward-looking short-term indicators. It has now broken out above both its
50-day and 200-day moving averages. Resistance will come in the high 4,900s
with support at 4,800 and several other levels terraced down from there to
4,700.
The New Zealand 50 Index Gross was up 0.3% to 3,225. It too has broken above
both short-term moving averages but has weakening yet still slightly favorable
short-term technical indicators
The Greater China markets displayed no common pattern. Shanghai was the most
volatile of all Asian markets, and the Shanghai Stock Exchange Composite (SSEC)
had the second-smallest gain, up 0.6% at lunch on Friday to 3,048 before
declining for the rest of the day to 3,013 to end down that same percentage
amount on the week. It has now fallen out of the narrowing wedge between its
50-day and 200-day moving averages with slightly negative short-term technical
indicators.
Hong Kong's Hang Seng Index followed Shanghai down during Friday afternoon but
still ended the week up 1.9% on the strength of its Monday performance. The
Hang Seng, however, remains above both its 50-day and 200-day averages and
retains some favorable short-term technical strength despite decreased volume
and some indicators of being overbought.
The Taiwan Stock Exchange Composite (TSEC) was up 1.1% to 7,754, the
third-least volatile and the most average absolute performance on the week.
As mentioned above, Japan led the way up this week with a gain in the Nikkei
225 of 3.7% to 10,749 by late afternoon Friday local time with strong
forward-looking short-term technical indicators. This index has now also moved
up out of the wedge between its two moving averages and will find resistance in
the high 10,900s.
The other Northeast Asian market, in Seoul, lagged Tokyo a bit but the KOSPI
was the region's fourth-best performer this week, up 1.6% to 1,660 in late
afternoon local time. So the two Northeast Asian markets were two of the four
strongest in the region overall, yet interestingly their volatility was only
average.
In India, the BSE Sensex 30 was up 1% to 17,159 in mid-afternoon Friday local
time after stalling around 17,230 but still showing short-term technical
strength. It was Singapore that turned in the second-strongest showing of the
week after Tokyo, as the Straits Times Index rose 3.4% to 2,885, leaving both
its 50-day and its 200-day moving average behind, but again with volume
slightly down and an objectively overbought situation.
It is entirely possible that leadership in the Asian markets is rotating from
one exchange to another, even though there is no coherent plan that this should
happen. Shanghai was in the recent past flagged as the target of opportunity
for investors seeking greater risk, but it has not played that role lately.
Instead, two weeks ago Hong Kong, last week Mumbai, and this week Tokyo have
played this role. Investors are no longer expecting the other shoe to drop, or
at least not as soon as they may have thought.
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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