News / Inter Market Analysis
After the Philippine Stock Exchange Index plunged to the 2,700 level several weeks ago, the index has rebounded from what we considered to be rock bottom levels. Thankfully, it is now hovering around the more manageable 2,800 to 2,900 range. A key factor to this rally was the good showing by global markets, led by the Dow Jones, which have surpassed key resistance levels. For the Dow Jones, the vital number here was the 13,000 level.
Charts of the Dow and other major markets like the S&P500 look encouraging with signs of formations of upward trend patterns that at the same time show us the sustainability of these trends.
On the other hand, there is still a need for the Dow Jones to hurdle the 13,200 level before we are convinced that the downtrend is already over. Still, the situation is an improvement over the January-February downtrend.
Moving on, a look at the 10-year US treasury trend reveals that yields have moved above the downward trend formed during the US subprime crisis. US treasury trends are important indicators for equity markets, specifically for emerging markets, because yields moving higher are good indications that market players are becoming more risk tolerant and are shifting back to stocks. We have proven this correlation when the subprime crisis began last year.
Let’s also look at the Japanese yen, which is also an indication that foreign fund managers are looking at emerging equity markets. Since hitting the bottom at Y95.73/USD last March 16, the Yen has now depreciated almost 10% to its current level at Y104.06/USD. Any more weakness in the Yen from here on is a clear indication of funds availing of the Yen carry trade once again. Recall it was this unwinding which was one of the major indicators of the sell off last year.
Let me stress that all of these are just initial signs. We need more economic data to be convinced that the worst of the US subprime crisis has passed.
We should also remember that the markets move a step ahead of business cycles once it sees that all the necessary ingredients are there for a recovery.
The current situation is now conducive for a decoupling by Asian markets from other markets. Certainly, the situation is more ripe now than the start of the year when a lot of analysts made erroneously calls that the decoupling would happen then. The important factor here is that a lot of the uncertainty in the credit markets has already been fleshed out, with the outcome (at least for now) looking a lot better that what we had initially feared. |
