As with economists and investors everyone, we are constantly debating different opinions and ideas, so today the optimistic flank will suggest that things really are getting better – in Asia at least.
That is certainly what investors in Asian Stock Markets think.
The overall MSCI Index of Asia-Pacific ex-Japan shares was up 4.6 per cent overall yesterday, closing above its mid-October levels seen immediately before the Financial Crisis went global. From the lows hit in early March, the index has gained a huge 45 per cent. In Singapore, the market has seen its second best April ever. This is the start of the Golden Week in Japan, so Japanese markets are closed for the next three days.
Take a look at the gains across the board in Asia on Monday 4 May:
| India: Sensex 30 | Up 6.41 per cent |
| Singapore: STI | Up 5.65 per cent |
| Taiwan: Taipei | Up 5.64 per cent |
| HK: Hang Seng | Up 5.54 per cent |
| Shanghai Composite | Up 3.32 per cent |
| Australia: ASX 200 | Up 3.00 per cent |
| Thailand: SET | Up 2.96 per cent |
| Korea: KOSPI | Up 2.10 per cent |
But how sustainable is rally? It has been ongoing for 7 weeks now, so it certainly seems more than a dead cat bounce. Investors in Asia right now are focused on the positives. ‘There is so much good news on the macro front that no one wants to be left behind’, says CIMB Economist Wun Song Seng.
That is because there are clear signs that Asian manufacturing activity is at least slowing its descent, and in many cases picking up. Since most economies in the region depending on exports, once manufacturing and exports pick up the recovery will follow soon thereafter. Unlike the major western economies, Asia does not face a major amount of toxic debts in its banks, having cleaned up its act after the Asian Financial Crisis.
Are these really green shoots of recovery? Analysts say that at least in China’s case, the green shoots have already blossomed. China’s PMI manufacturing index hit 53.5 in April, its highest figure in a year, and a signal of strengthening growth. Another annual high was hit in the MNI China Business Survey, which showed business confidence growing to 61.5 in April, up 7.31 points in a month. South Korea has also reported increases in industrial production and exports.
There are still causes for concern though. A big part of the ‘recovery’ has been hot money flows into the region from major global funds. Having pulled money out of Asia in vast quantities in the fall last year, funds are scared of under-performing and are pumping money back into the system. This flood of liquidity is also fuelled by the actions of central bankers, who have been increasing money flows.
As Hosni would say, hot-in cold-out – these flows can reverse direction even quicker than they can come in, leaving markets stone cold just as they did six months ago. Technical analysts warn that the bullish pattern formed in many Asian markets is reminiscent of that in May last year, which was followed by a bear market run all the way to the lows of October, a full six month run.
What was the technical trigger for that pull back? The inability for the markets to move convincingly past their 200 Day Moving Average figure. And guess where markets are headed to now? You guessed it, they are coming up to the 200 DMA resistance line again. If they can’t hold above that level, the green shoots could quickly become a false spring.
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