30Apr2006
CHINA bull market update
As most are already aware: nearly every stock market in the world is now in a bull market. From the huge western hemipshere juggernauts to the small emerging markets of the world. The question then is not who is in a bull market, but how advanced is their bull market in terms of time and wave structure. The answer, surprisingly, leads to a generalization as well, with a couple of exceptions.
The longest running major bull market is in India: the Bombay Stock Exchange (BSE). Their bull market started in October 2001 with a cycle wave [1] kickoff, and is getting close to ending the current leg up which started in October 2002. Next is the United States, which started its cyclical bull market in October 2002, and it is also fairly well along in time and wave structure. Most of the other major markets started in the spring of 2003: the four majors in Europe FTSE/DAZ/CAC/MIB and the Asian ASX/NIK/STI/HSI. And for the most part, they are all fairly well along too. The one exception is China's Shanghai Stock Exchange (SEC). Its bull market started less than one year ago in July 2005, and it has only risen 40% as compared to the others which have all risen well above 100% already. The world's fastest growing, ( 9%-10% per annum ), emerging economy just started its bull market. In the months ahead, while most of the major stock exchanges will be topping out, China's SEC will still be going strong. It is also important to note, that some of mainland China's neighboring stock exchanges will probably extend their bull markets because of their economic involvement in China; namely Hong Kong, Singapore and possibly Australia. Korea and New Zealand, both of which I do not follow, might benefit as well. Since there isn't any direct way of investing in China's stock market for non-residents. London and Hong Kong ingeniously put together an ETF, managed by Barclay's Bank: comprised of the 25 largest and most liquid companies headquartered in Hong Kong, that devrive most of their business from mainland China. The ETF is named the FTSE/Xinhua China 25 Index Fund (symbol FXI) which is traded on the NYSE. The FXI closely follows Hong Kong's: Hang Seng Index (symbol HSI), and it's index (FXT) is actually traded in the Hong Kong markets, with futures and options.
Technically, the Shanghai Stock Exchange Composite (symbol SSEC) has only completed two intermediate term waves from its July 2005 lows thus far. The first, labeled Major wave 1 completed in September and was followed by a Major wave 2 flat into early December. Then a lesser degree Intermediate wave i topped in late February, followed by a quick Intermediate wave ii into mid March. Currently the SSEC is in Intermediate wave iii of Major wave 1, and the first of five primary waves in its bull market. Basically, it's just getting started!
The Hang Seng (HSI), conversely, is much further along than the SSEC. It completed Primary wave I in March 2004, corrected into May 2004 completing Primary wave II. Major wave 1 topped in early December 2004, and then corrected into late April 2005 completing Major wave 2. Now it starts to get interesting. Major wave 3 has been subdividing into waves of a lesser degree. Intermediate wave i completed in August 2005, and was corrected into late October 2005 completing Intermediate wave ii. The next advance began to align with Shanghai's SEC, and completed the alignment at the late February highs ending Minor wave 1 (another subdivision). A quick correction into March, ending Minor wave 2 and the alignment was complete. The two indices: HSI and SEC were moving in unison until the recent interest rate hike in China. The Chinese traders took it as a positive sending their market to new highs on friday. The rest of the world's traders took it as another opportunity to sell. Guess they know better than the people who live there ??? .
Currently, both indices appear to have completed four waves up from the early March lows and should now be in the intermediate term topping fifth wave. Expecting a push to new highs, in both indices, in the next couple of weeks. China is closed for the Labor day week starting May 1st. Yes, they take the whole week off. All charts are posted on chart link: SSEC daily/weekly, HSI daily/weekly and FXT daily/weekly.
| 09April2006
CHINA's New Bull market!
At the beginning of 2006 I started posting charts and wave counts on several of the foreign markets: ten in all. Most have similar patterns to the indices in the U.S. Thus, it was just another view of basically the same worldwide bull market. However, a few foreign markets appeared decidedly different, namely: Australia's ASX, Japan's Nikkei and China's SSEC.
Australia is an unique market in that it has a growing business economy, with a thriving natural resources sector. It's an interesting alternative market investment when things start to get rough in the euro/american markets. Japan is a another special situation. In the 1980's Japan had seven of the ten largest banks in the world. Their unique cultural based business practices, especially in manufacturing, was the envy of the western world. However, their highly speculative stock market and leveraged banking system all unraveled in the 1990's, of which, they are only just recovering.
China provides a very unique investment situation, in my opinion. A country with a vast potential of natural resources, a total population second to none, and a government determined to make their country prosperous in the world market place after centuries of economic and political isolation. China's economy has been growing at a 10% rate for several years now, with hardly any inflation. Rather than continue about the fundamentals, which is not my specialty. I suggest you do your own research: there is plenty of it to peruse on the internet. My field is Technical Analysis: specifically Objective Elliott Wave analysis. And, based upon this analysis, I can envision a potentially excellent investment opportunity in China's stock market index: Shanghai Stock Exchange Composite SSEC.
In July 2005, China's stock market ended a multi-year bear market, which corrected the excesses brought about by the normal cause of bear markets: overspeculation. It was a late entry in the 1982 - 2000 bull market: the exchange only organized in 1990, took a few years to settle down, and then started a Supercycle bull market in 1994. From 1994 - mid 2001, (late again, most world exchanges topped in early-mid 2000), the SSEC soared: from a low of 325 to a high of 2245, a 600% gain. This was Cycle wave [1] . To correct these excesses, a four year bear market ensued, retracing over 60% of the previous bull market. This is Cycle wave [2]. From this low in July 2005, the SSEC has thus far advanced in only two impulse waves: Major wave 1 and Intermediate wave i. This appears to be only the beginning of its next bull market, or in OEW terms, the beginning of Cycle wave [3].
Unfortunately for us westerners, direct investing in China's market is only available to the residents of the People's Republic of China. However, there are ADR's for a number of their major companies, several managed mutual funds, and three ETF's. I've done some research, and have concluded, that the purist play available to us is the ETF: FTSE Xinhua China 25 (FXI). It is an index comprised of the 25 largest and most liquid companies, headquartered in Hong Kong, that derive most of their revenue from mainland China. The index was organized by England's FTSE and Hong Kong's HSI in mid 2001. Right at the top of the Chinese bull market! The ETF, however, began trading on the NYSE in late 2004. The symbol for the actual stock index is FXT. Sounds complicated? There's more!
The FTSE Xinhua China 25 Index unfolds like a combination of Hong Kong's HSI and China's SSEC indices. In other words, it is not a pure mainland China play, nor a pure Hong Kong play, but a combination of both. Unfortunately, this is the best that is available to us at the present time. Until China opens its stock market to the world for direct investing this is the best we have. Hong Kong's HSI is in an extending Primary wave III, so at this point they are both rising strongly. I am going to add the actual FTSE Xinhua China 25 Index (FXT) to the chart link. There we can observe all three indices simultaneously. If anyone knows of a more direct investment vehicle, either post a comment, or contact me by email. We would all like to hear about it.
As the western bull markets appear to be winding down, some of the eastern bull markets appear to be winding up. There is always a bull market somewhere. And, I will do my best to find it. Best to your investing!
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