Asian Stocks still far from previous 2008 bottom

Source: Bloomberg

Stocks in Asia excluding Japan may extend a bear-market rally for “several” weeks before resuming declines that could send them to new lows next year, according to Mizuho Securities Asia Ltd.

The MSCI All Country Asia excluding Japan Index rebounded 13 percent in the six days through Oct. 13, following a 31 percent plunge from its April 28 intraday high. In the four previous periods when the Asian gauge dropped more than 30 percent from peak to trough closing levels since records began in 1988, all were interrupted by rallies of between 14 and 45 percent, before the routs resumed. A minimum drop of 20 percent from a peak signals to some investors a bear market.

The chart above tracks the performance of the Asian equities index since 1996, with bear-market rebounds denoted by red circles. The lower panel shows daily percentage changes in the gauge. The measure rose 1.4 percent at 469.62 on Oct. 13.

Gains should see the Asian stock index approach the 500 level “over the next several weeks,” Chris Roberts, head of Asian technical strategy in Hong Kong at Mizuho, said in a Oct. 13 report. “The bear market should take 11-13 months to complete, making March-May 2012 the expected time frame for a final low.

The MSCI Asia ex-Japan gauge dropped 67 percent from May 1996 to September 1998 during the Asian financial crisis, yet it mustered a 45 percent rebound from Jan. 12 to March 25, 1998. It increased 14 percent from May 26 to July 17, 2000, amid a 57 percent slump that spanned from February 2000 to September 2001 sparked by the bursting of the so-called dotcom bubble. An 18 percent gain from Oct. 10 to Dec. 3, 2002, failed to stop the gauge from falling 30 percent in a year beginning April 2002.

A 66 percent plunge in the measure over 12 months from October 2007 was marked by a 19 percent rebound from March 17 to May 2, 2008. “The other four declines of 30 percent plus lasted an average of 18 months,” Roberts said. “The current decline is seven months old; it’s too soon to think that a lasting low has been registered.”