Charts show Asian markets oversold

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By R SIVANITHY
Source: Businesstimes.com
6 September 2008

STI falls 2% to hit its lowest since Oct 2006; Merrill says markets are oversold, will be 20% higher in a year

ALREADY left tottering on Thursday after a region-wide selloff, Asian markets had the rug yanked from under their feet yesterday following a blowout a day earlier on Wall Street where the major indices lost an average of 2 per cent.

The US sub-prime-related economic slowdown that is now spreading across the globe, rising joblessness and a worsening earnings outlook were said to have been responsible for the US market's selloff, this despite oil prices showing signs of retreat.

'The warning signs were there mid-week when Wall Street did not react to a large drop in oil,' said a dealer here. 'Instead, it struggled to hold on to minor gains so people should have known that trouble was brewing.'


Oil dropped US$8 a barrel on Tuesday to US$107, prompting a large run-up in regional stocks in the hope that Wall Street would react that day. Instead, it surrendered a large early rise to close weaker that day.

Since then, the US market has displayed persistent instability and a preference for focusing on bad news instead of the good. Higher labour productivity reported on Thursday, for instance, was brushed off in favour of a focus on the US Federal Reserve's Beige Book report on the economy, which cited weak housing, difficult credit and slowing consumer spending.

Here, the Straits Times Index plunged to a 22-month low on Thursday, and a 51.84-point or 2 per cent loss yesterday took it to 2,574.21, the lowest since it ended at 2,559 on Oct 4, 2006. It fell four of five days, losing 6 per cent in the process.

Elsewhere in the region, Hong Kong's Hang Seng Index lost 456 points or 2.2 per cent to close at an 18-month low of 19,933.28, while Japan's Nikkei 225 lost 345 points or 2.8 per cent at a six-month low of 12,212.23.

Merrill Lynch in its Asia-Pacific Investment Strategy yesterday said its technical indicators show Asian markets are oversold and so predicts markets will be 20 per cent higher in 12 months.

'The MSCI Asia-Pacific ex-Japan Index fell to two standard deviations below its 200-day moving average in mid-July and is 1.5 standard deviations below currently. On average since 1994 when Asian markets have become this oversold, they have risen 22 per cent over the next 12 months,' said Merrill. 'A falling oil price also benefits Asia as its economies are much more energy-intensive than the US.'