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This week we look at regional indicators in response to a request from Kevin:
‘Hi Tom,
Great analysis – thanks.
I’d be pleased to hear your views on the indices in our region.
i.e. – especially the Shanghai, as China is now a major trading partner of Australia.
If you have time, Hang Seng, KOSPI & Nikkei indices also...
Thank You, Kevin’
And I thought the review could be of general interest, hence I am providing that review for all.
Kevin – I have chosen the FTSE China 25 as I think that is probably the best summation of the perspective in China. This is a ‘distant’ and perhaps more objective view of the China outlook as opposed to the ‘internal’ Shanghai Index. But it will reflect the view of China-based European analysts to some extent and thus you have the best of both worlds.
I have been working in Asia for the last 12 months and one point I should make is that it is often very difficult to obtain reliable economic data in many emerging countries and especially ‘managed’ economies as there is a tendency at times to ‘manage’ data. Thus when recording or forecasting economic outlook one has to rely on anecdotal evidence based on experience to corroborate the often paltry data. So for that reason I think the ‘distant’ view is worth noting.
So the technicals for the China 25 are:
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The index is about half of its peak of late 2007 but we could see another leg down, and certainly, Chinese leaders have been trying to ‘soften the landing’ by issuing cautionary outlooks to temper what were still seen as bullish western views of what is happening in China. China will boom again but we probably have some further easing ahead.
The Nikkei is still looking grim:
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Again a consistent picture – some further easing. And for the last year there has been very little interest in the Japanese market:
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When we look at a bigger picture we see:
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This is a 25 year monthly chart and what we note is that the Nikkei is about a fifth of what it was at its peak of over 40,000 in late 1989. The Japanese economy has undergone major structural change and now 40,000 is just a figment of imagination and is not even worth contemplating when it might get back there - which may not be in our lifetimes. There is every prospect we may see a ‘triple’ bottom in the coming year – a rare sight!
The Hang Seng is also looking weak and is likely heading south in the coming months:
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Again there is very little buyer interest and this is unlikely to change between now and Chinese New Year on January 23rd. So it would be mid-February before we are likely to see any real action.
Asia of course is of great interest to many Australian investors wanting to diversify their portfolios. There is little doubt that Asia is the engine room of the world and that is likely to remain so for many years ahead. Australia is to some extent leveraged off this outlook in that we supply minerals and thus if you hold mineral stocks in Australia you will benefit.
The subject of how one might further diversify one’s portfolio is perhaps something we can look at in detail in another issue.
Enjoy the ride
Tom Scollon
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