MONTREAL - Asian equities continued strong advances this week, even if the pace
was not quite as torrid as it has been for the previous fortnight. The MSCI
Asia Pacific Index is registering its fifth consecutive monthly advance,
closing at 109.9, up 1.1%, while its ex-Japan version rose 1% to 356.7.
The aggregate numbers would have been higher if not for a drop of 5% in the
Shanghai Stock Exchange Composite (SSEC) on
Wednesday alone and a not unrelated 2.4% decline in the Hong Kong's Hang Seng
Index the same day.
Xinhua News Agency attributed the Shanghai drop (the SSEC was down 7.7% at its
intraday low) to the diversion of capital to the "mega-debut" initial public
offering of China State Construction Engineering Corporation (State
Construction) and to concerns over bank lending restrictions. State
Construction rose 56% on the first day of trading after the company sold shares
worth 50.2 billion yuan (US$7.4 billion).
Nevertheless, with a weekly gain of 0.9%, the SSEC is, as Bloomberg News notes,
closing out its best month in two years at 3,402, on the cusp of a resistance
interval beginning from the high 3,400s and then attenuating until its upper
bound in the high 3,600s. As newly announced rules have not discouraged
speculation on the Shanghai exchange, and there is now a general consensus that
it is an expanding mini-bubble, there is speculation the government will cut
lending in the second half of the year in an effort to tame it.
If Shanghai was the weakest and the most volatile, then Taiwan was the
second-weakest and the third-least volatile. The Taiwan Stock Exchange
Composite (TSEC) rose 1.5% on the week to 7,077, fighting so far successfully
to stay above the 7,000 (to which I have often pointed as a confluence of
short-, medium- and long-term resistances) but unable to confirm an advance
past the 7,100 level (traced as a supplementary resistance level out in early
March 2004) despite a Tuesday close in the 7,140s and a Wednesday intraday high
(at the open, followed by decline throughout the day) in the 7,180s.
The TSEC rather easily recovered from intraday lows near 6,950 on both Monday
and Thursday. Later in the week, it was buoyed by a strong profit report from
Taiwan Semiconductor Manufacturing Company. In the third Greater China
exchange, the benchmark Hang Seng Index gained about 2.9% on the week, closing
on Friday up 1.68% on the day at 20,573. Like Shanghai and Taiwan, the index is
on the cusp of a long-term resistance interval that in Hong Kong's case extends
into the 20,700 region.
The Australia and New Zealand markets also participated in the advance. The
Australia All Ordinaries Index rose 3.8% on the back of strength in commodities
to close the week out at 4,251, where a formation from March 2005 provides
chart resistance and also a wave multiple of its low earlier this year marks a
possible pause.
The New Zealand 50 Index Gross, once again the least volatile national index in
the week, maintained its strength to close up 1.8% at 3,016, although with a
strange Friday session that saw a fast run-up into the mid-3,040s from the open
followed by a stair-step decline throughout the day to the opening level.
The interpretation of this behavior is to establish the second week of April as
the mark for the beginning of the up-channel that has constrained the index
since then. However, that level is not at first glance an evident chart
resistance, which is not to say the subsequent evolution will not reveal a
logic for it to be so interpreted in retrospect.
The two Northeast Asian exchanges also registered good gains. The Nikkei 225
Index in Tokyo was steady and strong, the second-least volatile of the region
yet the second-best gainer, rising 4.1% on the week to 10,357, thanks to strong
earnings from such heavyweights as Sony and Mitsui, even as domestic
unemployment rose to a six-year high at 5.4% and consumer prices (ex-food) fell
1.7% in June. This prompted renewed concerns about the domestic economy,
despite improving exports, as unemployment has not topped out and deflation
will erode profits even if these continue to recover.
The Nikkei's current level runs now up against long-term resistance first
sketched in 1984 and then confirmed in 2001, although subsequent chart
movements attenuate these. The index may continue into the low 11,000 range
before weakening. Movements this month show that the beginning of its recent
advance should be marked as from the late March intermediate low at 8,110. By
that reckoning, wave analysis would justify a further advance to 11,200.
The KOSPI in Seoul continued its strong performance by clocking a 3.2% gain to
1,551, over half of it coming in the last day-and-a-half of trading as a break
through 1,520 was confirmed, although on decreasing volume, albeit with highly
respectable but not overbought relative strength. A more significant resistance
intervenes at 1,600, established in March 2008 and confirmed throughout July
and August of that year.
Singapore's Straits Times Index, the city-state having officially left
recession a few weeks ago, was up almost 4.6% on the week near Friday's close
near 2,650, which is a local maximum from May 2006 but unconfirmed as a real
resistance level. The Singapore index is still in the middle of the up-channel
begun in the second week of March and at a wave multiple of its March low;
however, it could still rise further to the next wave multiple near 2,900,
where, congruently to the KOSPI's chart, formats from March 2008 and
June-August 2008 show more significant resistance.
Finally, the benchmark Indian index BSE Sensex 30 was up 1.8% on the week as of
mid-afternoon Friday local time to 15,637, with nearly all the gain coming in a
gap-up at the open of Friday trading. This follows a precipitous decline on
Wednesday morning, when it fell 4.5% in under an hour, finally bouncing off
from 14,900 and recovering the rest of the week.
The current level matches a resistance line sketched in mid-July 2007 and
confirmed in August 2008, as well as a short-term level that the index was
unable to surmount in the second week of June. Indeed, the Sensex has been in a
trading range between 13,400 and 15,650 since the mid-May gap-up following
unexpectedly strong election results for the ruling Congress Party. This
behavior could continue for some time, or else the next decline to the lower
bound of the range might test the gap-up once again, although a mid-July
decline to that level has already once healthily rebounded.
The advance in Asian equities may still have some distance to run, driven by
the increasingly speculative inflow of large foreign capital in search of quick
profits. The run-up, however, is fast maturing and definitely is no longer
young. It looks like it could soon be running on fumes, unless extrinsic events
succeed in spreading the mania further beyond the current institutional buyers.
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 at the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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