Alpha Edge - Asia’s weakness continues

Asia’s equity markets, particularly in ASEAN, continued to show weakness in July and we believe this downtrend will continue this month. We remain bearish on Asia. While the S&P500 has been trading sideways for months, we are also looking for this Index to break down in the coming weeks. The Dollar Index’s uptrend is still strong.

Asia markets are breaking down
We have been bearish about Asia’s equity markets over the past few months and in July, we saw signs of further breakdown in the regions’ markets. YTD, the MSCI Asia-ex Japan Index (MAxJ) has been underperforming the US S&P500. MAxJ’s monthly chart shows the Index breaking below its major support trendline last month. This 7-year support trendline is important as MAxJ tested this trendline a few times over the past few years. This is not good.

China’s correction not over?
One of the major reasons for MAxJ’s underperformance was the collapse of the China equity market in Jun. It does not look like this downtrend is over. The Shanghai Composite Index experienced an “a-b-c” rebound in July and there is a strong chance this rebound is over and the next down-leg has started. For now, the Index is finding support at the 200-day SMA.

KLCI to test 1,660 again?
Over the past two years, Malaysia’s KLCI tested the 1,660 levels twice and the Index is likely to test this support again next week. The long-term support trendline was broken this week, at 1,710. What was support is now major resistance. (Read Report)

Source : CIMB Research