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Where are we with Asian indices?

The end of 2016 found the market apprehensive with regards to Asian markets and the reasons for the apprehension had been apparent. 

Markets
Source: Bloomberg

A swift lift of regional markets had instead been the case since the start of 2017. The question lies with how much further can these indices run?

Since the tumultuous start to 2016 where we saw China's stock market dragging down regional indices, Asian markets had made steady recoveries. While growth outlook remains a latent concern, the Trump Presidency had further introduced uncertainties to the equation with regards to trade outlook. The main threats for Asia had been the President’s decision to withdraw from the Trans-Pacific Partnership (TPP) and the slew of actions to be taken against China including declaring the country a currency manipulator. While US markets took off post US elections in November, Asian markets had been slow to follow. 

Returns
Source: Bloomberg

The start of 2017 had been the boom for Asian markets. While President Trump wasted little time signing orders for the withdrawal from the TPP agreement, the verdict on China had been left without proper address. This vacuum had given Asian markets further room to run and the rally itself had also been underpinned by the lift in regional economic conditions. A standard measure of purchasing managers' index (PMI) by IHS Markit, cutting across Asia, had found that most sectors showed an accelerated increase in output into February. This increase in output has also managed to translate to better trade figures for the region, lifting the outlook for regional equities.

A check at the start of March finds key Asian indices with substantial gains, led by the local Straits Times Index (STI). At IG, the Singapore Blue Chip, with the MSCI Singapore index as the underlying index, had clocked more than 7.0% gains since the start of the year, departing from the directionless trade in 2016. This clearly exhibits the positive sentiment found in regional markets. 

Asia Sector Output
Source: Press release from IHS Markit

The key question for Asian indices moving forward will be how much further the markets can run. Classifying the drivers into opportunities and risks, it may appear that the opportunities outweighs the risks that have yet to be realised at the moment.

On one hand, it is undeniable that we are seeing a pickup in economic conditions in the region such as via the abovementioned. On the other hand, trade concerns continue to loom above our heads for Asia, especially with Trump-induced uncertainties still apparent. Other latent risks in the region includes a return to the slow growth outlook and the threat of capital outflows should the Fed significantly increase the pace at which they raise interest rates.

That said, the growth outlook certainly appear to be rosier at the moment and places the bias on the upside. A re-evaluation of the markets past mid-year may nevertheless be warranted with analysts yet to be convinced to significantly raise growth forecasts. 

 

Technical Analysis

Nikkei has largely been range bound at the moment with USD/JPY playing ping-pong between $112 and $115. Eye a break for both the USD/JPY and correspondingly the 19,700 resistance for the index. 

Nikkei
Source: Bloomberg

Weekly chart for the HSI finds the 24,000 psychological level a tough resistance to break. Near term trades may see some bearish divergence but the broad uptrend is likely to bring prices up to retest the level. 

HSI
Source: Bloomberg

The Singapore Blue Chip has broken out strongly from the resistance at 335 at the start of the year. However, in line with related markets above, the index finds resistance ahead of 350. Eye a clear breakout for entry. 

Singapore Blue Chip
Source: Bloomberg

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