ASEAN market review
Eoin Treacy's view A number of ASEAN's high growth markets were among the first to bottom in 2008
and some were already recovering before Wall Street bottomed in 2009. They were
also among the first companies to hit new all-time highs in 2010 and were some
of the better absolute and relative performers until this year. They almost
all pulled back sharply in May and have so far struggled to recover. I thought
it might be instructive to review these markets in both local currency and US
In local currency terms, Indonesia has held a progression of higher major reaction lows since late 2008 but had become quite overextended when it hit a medium-term peak in May and has now pulled back to range in the region of the 200-day MA. It will need to continue to hold above the June lows if the medium-term upside is to continue to be given the benefit of the doubt. In US Dollar terms, the Index was rangebound from July 2011 and failed to sustain the breakout to new all-time highs this year. It is now testing the June lows and a clear upward dynamic will be required to check potential for a further test of underlying trading.
Malaysia has a generally similar pattern to Indonesia in local currency terms but underperformed for the majority of the more than four-year bull market. May's election result was viewed positively by the market and the Index surged higher. It has held the majority of the advance and a sustained move below the 200-day MA would be required to question the consistency of the medium-term advance. In US Dollar terms, the recent weakness of the Ringgit has weighed on performance but the medium-term progression of higher reaction lows is still intact.
The Philippines had become quite overextended when it hit a medium-term peak in May and has since posted its largest reaction in more than four years. While the Index has firmed over the last month, some time will be required to rebuild confidence but it will need to hold above the June low. The US Dollar chart is broadly similar.
Thailand's reaction from the May peak is relatively similar sized to that posted in 2011 but it will need to hold above 1330 if the medium-term upside is to continue to be given the benefit of the doubt. In US Dollar terms, the Index has a similar pattern.
South Korea rallied impressively from its 2008 lows to post new all-time highs by late 2010. Its sharp pullback in August 2011 had Type-2 top formation characteristics as taught at The Chart Seminar. It has been ranging mostly between 1800 and 2000 since and rebounded from that lower boundary in June. The US Dollar chart is broadly similar.
Taiwan has a broadly similar pattern to South Korea but has held more of an upward bias over the last year. In US Dollar terms, the Index has a similar pattern.
Singapore also pulled back violently in 2011 but moved to a new high in May. It was unable to hold the advance and pulled back to test the upper side of the underlying trading range. It will need to hold above 3000 if medium-term potential for higher to lateral ranging is to be given the benefit of the doubt. In US Dollar terms, the Index has a similar pattern.
Vietnam has been a regional laggard since 2010 when its impressive rebound gave way to a medium-term progression of lower rally highs. The Index rallied to break the medium-term downtrend in February and continues to range above the 200-day MA. A sustained move below 450 would be required to question recovery potential. In the US Dollar terms, the Index's decline was exaggerated by the devaluation of the Dong but the recent price action is broadly similar to the local currency version.
The above charts demonstrate that some of the best performers since the 2008 lows have lost uptrend consistency and the recent weakness of their respective currencies has weighed on performance. The strength of the US Dollar is likely to exert more of an influence over the medium-term than it has over the last decade. Previously foreign investors could invest with the expectation of capital market and currency appreciation. In future the currency component is likely to be more questionable.