As the largest global bear market since 2000-03 unfolds, we take a look at the technical evidence and the likely road ahead. The weight of evidence indicates that Asian equities markets are likely to spend the next 12-24 months in a large trading range. Since the 400 level was broken in September, we have been focusing on the 300-350 area as a target for a low. The MSCI Asia ex Japan (last 302) index closing low to date is 293 on 10 October. The decline to that level has occurred on strong downward momentum and it seems unlikely that this will market the ultimate low of this bear market. However, with momentum indicators at historic extremes, the region is becoming increasing susceptible to some sort of sustainable rally. At 302, our regional benchmark - the MSCI Asia ex-Japan - is only 3% above the 10 October low and 8% above the 62% retracement level of the 2003-07 advance. A daily close above 340 would suggest some improvement, but a more important resistance is at 400. An advance at this stage is still likely to be a bear-market rally.
October starts a period where seasonal bias for equities globally is positive. While October 2008 will go down in the record books with the other infamous marketcrash years of 1929 and 1987, it is still the ideal time for a low to develop. The best way of capturing the positive end-of-year/beginning-of-year effect is to examine returns for three-month holding periods. The table on page 5 shows that the best of the 12 rolling three-month holding returns are captured in the fivemonth October through February period. The October/December holding period is the best three-month holding period in Asia as the average return is 8.2% and returns are positive 85% of the time. We will be looking for trading opportunity into further weakness.
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Asia: The road ahead
As the largest global bear market since 2000-03 unfolds, we take a look at the technical evidence and the likely road ahead. The weight of evidence indicates that Asian equities markets are likely to spend the next 12-24 months in a large trading range. Since the 400 level was broken in September, we have been focusing on the 300-350 area as a target for a low. The MSCI Asia ex Japan (last 302) index closing low to date is 293 on 10 October. The decline to that level has occurred on strong downward momentum and it seems unlikely that this will market the ultimate low of this bear market. However, with momentum indicators at historic extremes, the region is becoming increasing susceptible to some sort of sustainable rally. At 302, our regional benchmark - the MSCI Asia ex-Japan - is only 3% above the 10 October low and 8% above the 62% retracement level of the 2003-07 advance. A daily close above 340 would suggest some improvement, but a more important resistance is at 400. An advance at this stage is still likely to be a bear-market rally.
October starts a period where seasonal bias for equities globally is positive. While October 2008 will go down in the record books with the other infamous marketcrash years of 1929 and 1987, it is still the ideal time for a low to develop. The best way of capturing the positive end-of-year/beginning-of-year effect is to examine returns for three-month holding periods. The table on page 5 shows that the best of the 12 rolling three-month holding returns are captured in the fivemonth October through February period. The October/December holding period is the best three-month holding period in Asia as the average return is 8.2% and returns are positive 85% of the time. We will be looking for trading opportunity into further weakness.
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