By Shaun Cochran
Markets normally open the New Year with some strength as new funds are allocated for the year, performance track records reviewed and perhaps investors come back from holidays a little more optimistic about the world.
Offering some validity to this trend, the start to 2012 has been stellar. However, to the non-professional investors, this type of market action will no doubt raise eyebrows. Why now? What's different?
One key change is the arrival of aggressive liquidity support for European banks from the European Central Bank. We would contend that liquidity support is the single greatest risk to our bearish outlook.
Indeed our skeptical chief global strategist advises investors to give markets the short-term benefit of the doubt as a direct consequence of the recently more aggressive ECB.
While seemingly worlds away, in the highly interconnected global banking environment, developed world central bank balance sheets have direct relevance to the Korean market.
Korea is clearly a core risk on market within Asia. With foreign buying typically responding immediately to liquidity signals. The acceleration in the KOSPI is occurring as foreign buying has returned. However, the picture for the real economy is less clear; mixed growth signals are ample.
As much as bullishness has grown and global macro data points have improved, Korean earnings continue to disappoint unrealistic expectations. A fourth quarter is reliably the worst quarter of the year in Korea, typically declining by 30 percent relative to a third quarter.
Unsurprisingly, the fourth quarter of 2011 has been no exception with roughly 60 percent of companies we cover missing expectations quarter to date.
Compounding weak earnings, our economics teams reviewed both the Korean and the U.S. GDP figures as weak and consisting of low quality growth drivers that do not augur well for future quarters.
Korea saw a broad based deceleration of its economy in the fourth quarter of 2011. While the U.S. was high, it was dependent on inventory accumulations. Certainly bond markets are not signaling conviction in the state of growth.
Furthermore, despite a number of investors citing universal bearishness as a reason to be bullish, traditional risk indicators do not support such arguments locally or globally.
Our chief technician argues that short-term momentum indicators are overbought together with extreme readings in the CBOE (Chicago Board Options Exchange) put/call ratio and AAII (The American Association of Individual Investors) bull/bear spread, as well as a volatility index short-term sell signal.
In Korea we would peg the sentiment as neutral but not bearish. Korea is now approaching overbought territory with early signs of divergence.
Finally, what is interesting as we look at the strong open to the year for equity markets globally is that this is right in line with traditional Korea seasonality.
January is typically strong for Korea usually rising about 3 percent. However, this year was outstanding at 7 percent. In contrast, February is reliably the worst month of the year for Korea with the fourth quarter effect to be the most likely explanation for this phenomenon.
It is important to acknowledge that macro data points have improved. However, it is equally important to remain aware that historically, bounces are not an automatic confirmation of a full-cycle recovery. Bounces are common even during recessionary periods as observed in both of the two recent global recessions. Models that suggest macro deterioration usually offer 4 to 6 months of lead time; we will reach the end of that traditional window by quarter-end.
If the data is going to turn down again, it should do so in coming months. Korea is also slightly above its 200-day moving average and close to breadth levels that signal a new bull market has begun. From a market perspective, if a reversal is coming, it is likely imminent.
In sum, overbought conditions suggest a near-term correction is likely under either macro scenarios, with significant downside if global growth disappoints. We would not chase until there is greater clarity on the business cycle.
|
.jpg)
‘이 남자가 날 성추행했어요’ 사진 공개
-Government-sanctions.jpg)
