MONTREAL - Asian equities racked up strong gains this week, with outstanding
advances in the Indian, Australian and Hong Kong markets. The MSCI Asia Pacific
Index closed at its highest level in two weeks, up 2% to 102.6 since last
Friday's close and up 4.6% after the steep drop on Monday. Its ex-Japan version
closed up 4.8% since last week's close and 7.6% from the Monday plummet, at
329.6, its highest level for five weeks.
Mumbai's BSE Sensex 30 was the most volatile national index and the largest
loser, down 7.5% in the trading week ending July 10. This week it is the most
volatile national index - and the biggest winner, up 7.9% into the mid- to high
14,500s as of late
morning Friday local time. The range up until 16,000 is, however, littered with
resistance levels.
The Straits Times Index in Singapore, which has tracked the Sensex quite
closely, with the exception of the latter's gap-up in mid-May on the Congress
Party's unexpectedly wide victory in nationwide parliamentary elections, this
week almost matched it in volatility but was only the fourth-best gainer in the
region. This week, however, that still meant an eminently respectable advance
of 4.0% to 2,415.
The Straits Times Index has now been in the 2,200-2,400 range for over three
months, not counting a brief breakout in May down to the 2,100 level before
recovering back into the range. There is very longstanding resistance in the
2,400-2,500 interval, solidly dating back to December 1993, with confirmations
in February 1996, December 1999, and spring 2006.
The territory the Sensex now inhabits, by contrast, was uncharted until
two-and-a-half years ago, although it is worth noting that its spring 2006 saw
a local minimum at the level of lower bound of the gap-up two months ago. This,
along with another formation in March 2007, suggests that the index, should it
choose to decline to close that gap, might find some support at the given
level.
The two next most-volatile were the Greater Chinese markets in Hong Kong and
Taiwan, although the Shanghai market itself was the second-least volatile on
the week. It and Taiwan registered respectable gains, respectively 2.5% and
1.2% (which were nevertheless below average for the week), but Hong Kong was
the standout, gaining 6.2% in the week to close at 18,806.
The Hang Seng Index is now approaching again the descending-tops downtrend from
October 2007 and May 2008, which it confirmed early last month, unable to break
through the downtrend to the upside. There is some resistance at this level,
and stretching up to 20,700, which is inherited from chartwork running from
December 2007 through March 2008. The technical indicators are mixed and the
volume is average.
The Taiwan Stock Exchange Composite (TSEC) made clear its intention to continue
preparing another assault on the 7,000 level, as it opened Monday just under
6,800 before falling like the proverbial rock to close down 3.9% on the day,
recovering, however, throughout the rest of the week to close at 6,851. The
resistance at 7,000 stretches in a band up to 7,200 and has multiple long-term
touchpoints, for example, in October 1997, June 1998, throughout 1999 and again
in 2007. However, the technical indicators are decidedly favorable, albeit not
unanimously so.
The Shanghai Stock Exchange Composite (SSEC) continued its advance, as noted
above, and is now near the 3,200 threshold constituting the lower bound of its
gap-down from early June 2008. (The upper bound is in the low 3,300s.) Most
short-term technical indicators remain favorable.
The Northeast Asian markets in Tokyo and Seoul remained relatively very
tranquil. Their only excitement in the last five weeks came in the period up to
July 10, when the Nikkei 225 was the second-worst performer in a bad week all
around as well as the third most volatile. This week it and the KOSPI were
together the two most subdued national indices. The Nikkei gained only 1.2% to
close at 9,395 and the KOSPI rose 0.6% to 1,440. The latter is mired in a
narrow trading range down to 1,350, albeit now at its top, although with
ambiguous technical indicators.
The other two recently most docile national markets had an out of character
week. While the New Zealand 50 Index Gross was, as it often is, the least
volatile of the group covered here, it had a gain that was above its own
average performance, although average for the region for the week: still up
2.6% to 2,808, with much of the gain coming Thursday, it too is still in a
medium-term trading range from the low 2,700s to the high 2,800s.
The Australia All Ordinaries, however, was back to its glory days, at least for
a week, up 5.3% on the back of rising metals prices and threatening to make
another run to break out to the upside over the resistance in the low 4,000s
inherited from April-May 2005 and confirmed last year, and which acted as a
block since autumn 2008.
All this comes on optimism that the worst is over and that a worldwide economic
recovery may be genuinely on the way. The emerging markets are rising largely
due to hopeful foreign investors; but don't count your dividends until they're
in the bank. The stocks in the MSCI Asia Pacific Index, for example, are
trading at prices that are to 43 times earnings; the equivalent figure for the
S&P 500 in New York is 14. Both these numbers are above historical norms,
and it is not a sure thing that earnings will in fact flourish far into the
near-term future.
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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