A look at charts of Asian indices

The slowdown in economic growth in USA and Eurozone countries had a huge impact on the economies of many Asian nations – particularly those that were heavily dependent on inbound tourism and exports to North America and Europe.

Many of these Asian countries are geographically small in size and do not have a sufficiently large population that can sustain growth through domestic consumption. They suffered the most.

Even in China, which is large both in size and population, export-fuelled growth has slowed down somewhat – though growth remains quite high by global standards. The interesting thing to observe is that most stock market indices have suffered less than the respective economies.

This may partly be due to the flood of liquidity unleashed by quantitative easing programmes in USA and Europe. It may also be due to the realisation among investors that the worst is over and growth can only improve from now on.

Here is a look at the one year charts of Asian indices:

Shanghai Composite

The Shanghai Composite shows the greatest disconnect between the state of the economy and the stock market. The economy is still growing better than most in spite of some slowdown – but the index was deep in a bear market till Nov ‘12. Even after briefly returning to bull territory, it has formed a head-and-shoulders reversal pattern that can push the index down below its 200 day EMA.

Hang Seng

The Hang Seng index suffered at the hand of bears from May ‘12 to Aug ‘12, and is currently undergoing some profit booking. But it is clearly in a bull market.

Taiwan TSEC

The Taiwan TSEC index suffered a bear phase from Apr ‘12 to Nov ‘12, but has re-entered a bull market. The index has just about recovered its losses during the year.

Jakarta Composite

Despite a brief drop into bear country during May-Jun ‘12, the Jakarta Composite index has been in a long-term bull market and an outperformer among Asian indices.

Malaysia KLCI

Malaysia’s KLCI index has been in a year-long bull market, but it has been a volatile rally with occasional dips below its 200 day EMA.

Singapore STI

Singapore’s Straits Times index has been in a bull market after suffering a correction during May-Jun ‘12.

Korea KOSPI

Korea’s KOSPI index had a long struggle with the bears, but seems to have returned to a bull market for the past 3 months. It has failed to make any gains during the past 12 months.

How Asian stock indices have performed vs. BSE Sensex

In a post on Sep 15 ‘12, a comparison was posted between Asian stock indices and BSE Sensex. Except for the stock indices of Malaysia and Singapore, which had outperformed the Sensex over the previous 12 months, the Sensex did better or was an equal performer – thanks to good FII inflows.

Of late, the Sensex has been correcting after crossing the psychological 20,000 level. It could be due to the poor GDP number; or, it could be collective fear due to proximity to previous tops (which were followed by big corrections); or, it could be routine profit booking. Whatever be the reason, smart investors are probably using the dip to add.

Note that the Sensex has given positive returns over the past 6 months, as have 6 of the 7 Asian indices – with the Malaysian index being the sole exception.

China (Shanghai Composite) vs. Sensex

China’s economic growth has been higher than India’s, but that is not reflected in the Shanghai Composite index, which has underperformed the Sensex – except in the first week of Feb ‘13.

HongKong (Hang Seng) vs. Sensex

For a couple of months – from mid-Aug to Mid-Oct ‘12 – the Sensex outperformed the Hang Seng index. Thereafter, Hang Seng has been the better performer despite correcting in Feb ‘13.

Taiwan (TSEC) vs. Sensex

Sensex trailed Taiwan’s TSEC index in Aug and Sep ‘12, but has outperformed thereafter.

Indonesia (Jakarta Composite) vs. Sensex

Jakarta Composite  moved pretty much in tandem with the Sensex till Nov ‘12, but fell behind thereafter.

South Korea (KOSPI) vs. Sensex

South Korea’s KOSPI index led the Sensex till mid-Sep ‘12. Subsequently, Sensex has been the outperformer.

Malaysia (KLCI) vs. Sensex

Malaysia’s KLCI index is the only one that has given negative returns in the past 6 months. No wonder Sensex has outperformed it by a wide margin, despite falling behind in Aug ‘12.

Singapore (STI) vs. Sensex

Sensex outperformed Singapore’s STI index during the past 6 months – which is a bit of a surprise.

How is the Sensex performing against Asian indices?

You may find it hard to believe, but it is true. The Sensex has been the best performing stock index over the past 12 months when compared with its Asian peers.

Through all the chaos, scams, policy inaction, allies of the government turning foes, opposition parties stalling parliament proceedings, high interest rates, high inflation, fiscal and current account deficits, sliding exports, falling Rupee and a slipping GDP – FIIs kept faith in the Indian stock market.

DIIs on the other hand, played contrarian by selling off. Perhaps many were forced to do so as retail investors pulled money out of the market. Did anyone other than FIIs gain from the Sensex rise? May be a few fortunate or prudent investors, who locked on to FMCG and Pharma stocks.

Shown below are one year closing chart patterns of Asian stock indices (in blue), compared with Sensex chart (in green):

Shanghai Composite vs. SENSEX (in green)

Except for a brief spell in early Jan ‘12 and most of May ‘12, the Shanghai Composite index was outperformed by Sensex – particularly from Jul ‘12 onwards.

Hang Seng vs. SENSEX (in green)

Hang Seng moved in lock-step with Sensex for the first 5 months of the year, before losing some ground during the rest of the year. But it came close to matching the Sensex performance with a 20% gain for the year.

Taiwan TSEC vs. SENSEX (in green)

Taiwan’s TSEC index managed to hold its own till May ‘12 before getting left behind by the Sensex for the rest of the year.

Jakarta Composite vs. SENSEX (in green)

Except for the first half of Jan ‘12 and during Apr-May ‘12, Jakarta Composite index was no match for the Sensex.

Malaysia KLCI vs. SENSEX (in green)

For the first four months and the last four months of the year, Sensex clearly outperformed Malaysia’s KLCI index. During May-Aug ‘12, the race was a bit closer.

Singapore STI vs. SENSEX (in green)

Singapore’s Straits Times index matched or beat the Sensex performance during the first 8 months of the year, and notched up a creditable 20% gain. But Sensex outperformed STI during the last 4 months.

Korea KOSPI vs. SENSEX (in green)

For a few days in Mar ‘12 and May ‘12, Korea’s KOSPI index tried to hang on to Sensex coattails, only to be left far behind.

How Asian stock indices have performed vs. BSE Sensex

Strong inflow of FII money has taken the Sensex to a 6 months high – just below its 52 week high touched in Feb ‘12 – making the Sensex one of the better performing stock indices globally. But FIIs have been buying into other countries as well – boosting their stock indices.

Here is a look at how the one year closing chart of the Sensex (in green) compares with charts of some Asian indices (in blue).

China (Shanghai Composite) vs. Sensex

Despite its high-growth economy, China’s Shanghai Composite index has given negative returns and hugely underperformed the Sensex over the past 12 months – moving in the opposite direction since Jun ‘12.

HongKong (Hang Seng) vs. Sensex

In contrast, HongKong’s Hang Seng index has given positive returns during the past 12 months and managed to outperform the Sensex during the first 6 months of this calendar year. Only during the past 3 months has the Sensex been able to overtake the Hang Seng.

Taiwan (TSEC) vs. Sensex

Taiwan’s TSEC index has provided marginally positive returns over the past year. After matching the Sensex performance till Jun ‘12, it got left behind during the last 3 months’ rally.

Indonesia (Jakarta Composite) vs. Sensex

Despite some underperformance during Oct & Nov ‘11 and Feb ‘12, Indonesia’s Jakarta Composite index has kept pace with the Sensex and provided positive returns over the past 12 months.

South Korea (KOSPI) vs. Sensex

South Korea’s KOSPI index outperformed India’s Sensex during a 7 months period from Dec ‘11 to Jun ‘12, before the Sensex caught up during the past 3 months – both indices providing positive returns over the past year.

Malaysia (KLCI) vs. Sensex

During Sep to Nov ‘11 and Feb ‘12, Sensex performed better than Malaysia’s KLCI index. Otherwise, KLCI outperformed the Sensex and gave better returns during the past year.

Singapore (STI) vs. Sensex

Singapore’s Straits Times index outperformed India’s Sensex – except during Oct & Nov ‘11 – and gave better returns over the past one year.

Comparative charts of BRIC indices

The BRIC countries are supposed to be the next global economic growth centres. Does economic growth translate into stock market strength? It ain’t necessarily so (with due apologies to the Gershwin brothers). If you’ve not been exposed to Gershwin’s music, click on the link to hear an amazing rendition by violinist Jascha Heifetz.

How are the BRIC stock indices faring? Given below are the 2 years closing chart patterns of Brazil (IBOVESPA), Russia (RTSI) and China (Shanghai Composite) indices as compared with India (Nifty):

Brazil IBOVESPA vs. NIFTY (in green)

The Nifty has outperformed the IBOVESPA index over the past 2 years, though both indices have provided negative returns. Both indices are facing corrections after re-entering bull markets. The bearish technical indicators are pointing to a deeper correction – probably a test of support from the rising 200 day EMA.

Russia RTSI vs. NIFTY (in green)

Russia’s RTSI index has been more volatile than the Nifty over the past 2 years by touching higher tops and lower bottoms, but has provided marginally positive returns. The technical indicators are looking bearish. A drop below the 200 day EMA is likely.

Shanghai Composite vs. NIFTY (in green)

The Nifty has outperformed the Shanghai Composite index by a wide margin. China’s economic growth continues to be the highest among the BRIC nations, but its stock index has fared the worst. The technical indicators are looking oversold, so a bounce up may be on the cards. But it will probably be used by the bears to sell.

Despite its negative growth in the previous 2 financial years, the Nifty has lost less than the Shanghai Composite and the Brazil IBOVESPA indices, and been less volatile than Russia’s RTSI index. That may explain why the FIIs are buying in India despite all the scams and poor governance.

Stock Index Chart Patterns – Shanghai Composite, Korea KOSPI, Taiwan TSEC – Sep 23 ‘11

Shanghai Composite Index Chart

 

In my previous update of the stock chart pattern of the Shanghai Composite index, I had mentioned that the Aug 9 '11 low of 2438 may be tested and broken soon.  The index managed to stay above its previous low for almost 3 weeks before the inevitable happened. On Tue. Sep 20 '11, the index touched a new low of 2427. In today's trade, the index dropped lower to 2400, before closing at 2433. 

The bearish pattern of lower tops and lower bottoms continues unabated, with all efforts at up moves facing resistance from the falling 20 day EMA. Three of the four technical indicators are looking bearish - the slow stochastic is in its oversold zone, and the ROC and MACD are negative. The RSI has bounced up from its oversold zone, but is below its 50% level. The bears are regaining their stranglehold on the Shanghai Composite chart.

Korea KOSPI Index Chart

After the sharp fall in Aug '11, the KOSPI index had been showing a lot of resilience, with occasional forays above the 20 day EMA. But after 6 weeks of sideways consolidation, the Aug 9 '11 low of 1685 is under serious threat of being broken. The index dropped almost 6% in today's trade to close just below the 1700 level.

The technical indicators are weakening. The slow stochastic is below the 50% level. The ROC is sliding into negative territory. The MACD is above its signal line, but is still negative. The RSI is resting on the 50% level, but likely to drop below. Lower levels are likely in the coming week.

Taiwan TSEC Index Chart

Like the KOSPI, the Taiwan TSEC chart was trying to keep the bears at bay and managed to stay above its Aug 9 '11 low of 7149. Today's 250 points drop put paid to the last of the bullish hopes. The index briefly breached the 7000 level before regaining about 50 points from its intra-day low.

The technical indicators are bearish. The slow stochastic and the RSI are both below their 50% levels. The ROC and MACD are both in negative territory. Looks like the bulls are ready to throw in the towel against the bear onslaught.

Bottomline? The chart patterns of the Shanghai Composite, Korea KOSPI and Taiwan TSEC indices clearly indicate that the bears have regained the upper hand. All three indices are likely to seek much lower levels. But this isn't the right time for bottom fishing. Wait for the selling rush to play out. Buying can be considered after bottom formations become evident.