Derrick: I am afraid that the future movement of the Asian markets is out of the standard TA realm for a short time, or at least a little too complex, mostly due to the extreme gyrations of the local currencies (the Rupia going all the way from 2400 to what, 15,000 then back down to 10,000 Rupia to the dollar. Furthermore, I think that each country may have slightly different paths to follow. I believe that from a fundamental point of view, however, the future direction of these markets in general will depend strongly on Japan's leadership. Will they or will they not provide the demand driven rehabilitation these economies require. Japan is the main trading partners to all the countries involved, not the U.S. Japan has the wherewithal to absorb a lot of the excess capacity by increasing its domestic demand. IfJapan faiols to act, too much of the excess productive capacity in the rim will have to be written down. It is my opinion, however, that Japan will only pay a lip service and do as little as possible to increase domestic consumption and demand. They have a fear of deficits and a greater fear of trade deficits. They also have a fear a financial mini catastrophe if the truth about their banking system weak balance sheets become public knowledge (and thus induces runs on banks or something of that kind). I therefore think that they will try and use whatever accounting gimmicks are possible to cover up the problems in the banking. This will result, IMHO, in banks being unable to extend loans within the Japanese markets to help grease the economu back to its potential. Without such an action, I believe that the recent rally in the Asian market will not survive the first full week in February. The reasons in Indonesia will be the realization that that country has a defacto moratorium on debt, and no credible time table to repay such debt.
In Korea, the full extent of the write off required will start and cause revaluation of the chaebols to more rational levels. I think that the market at 560 in Korea, is not taking into account that more than 50% of the chaebols are left with devastated balance sheets in which half or so of the debt is dollar (or yen) denominated and has thus doubled otr more, while the assets on the books are won denominated and have thus lost half their value. With such devasted balance sheets, the Korean economy may find itself in a "barter" state, rather than a trading state. Rationing of credit may be imposed (and rationing of foreign currencies as well), which might slow down the same industries (export) that could generate the hard currencies required to restart the economy. I can also see desperate need for foreign currency causing mass dumping of excess inventories on world markets, eventually causing some of the chaebols to downsize drastically and reduce their exposure in areas of lesser competence. These kinds of dislocations could justify a market low well below 350.
Zeev |
