Markets Make Opinion

On a year to date basis, Figure 1 demonstrates how Asian equity markets have been performing.

Figure 1: Asian Equity Markets: Divergent Actions (stock charts.com)

And based on the big picture, as we have earlier argued[1], Asian equity markets appear to be in a profit taking mode rather than suffering from a major reversal.

And what media says about the supposed causal linkages does not match with the actions of the equity which appears to give credence to my case.

First of all, the market leaders, the major bellwethers of Philippines (light green), Thailand (light blue) and Indonesia (fushia) has been retrenching way ahead of the Ireland crisis or China’s struggle with inflation or the North Korea incident.

Second, the South Korean bellwether the KOSPI appear to be either peaking out or transitioning towards a consolidation phase even amidst the recent unfortunate military encounter with her communist neighbour (see red arrow).

Considering the heightened degree of risks from an escalation to an all out conflagration, the KOSPI lost only 2% over the week. In other words, the Korean markets have not been jolted in as much as the news coverage had portrayed it, given the ‘surprise’ factor from the shelling of South Korea’s Yeonpyeong Island. Another way to say it is that the event risk form the Yeonpyeong incident seems to have been largely discounted (based on last week’s actions).

Third, Taiwan (violet) and Japan’s (orange) markets seem to be jaded to these adverse current events as their respective markets continue to tread higher.

So overall, the stark divergences in the performances of Asian equity markets refute arguments attributing most of the current infirmities in the region’s equity markets to recent events. This is what is known as the available bias.

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[1] See Tumult In Global Markets: It Is Just Profit Taking, November 14,2010