Published May 18, 2009

Asian stocks outpace US, European markets by wide margin

India, Indonesia, China, S'pore stand out with gains of above 35%

By NEIL BEHRMANN
IN LONDON

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ASIAN markets have outperformed North American and European markets by a wide margin. During the bear market, the few bullish strategists were forecasting that Wall Street would outpace Asian markets until their exports recovered. Instead, the Asian markets with smaller market capitalisations and greater volatility have bounced back with a vengeance.

The wires and financial press have concentrated on the global stock market surge from the lows of early March. In practice, only lucky lottery ticket holders buy at the bottom and sell at the top. The rise over three months - since mid February - is probably a better reflection of realistic gains as it effectively irons out the extremes. The minority of bulls either began purchasing a few weeks before the bottom in early March and growing numbers of optimists, towards the end of that month and in April.

India, Indonesia, China and Singapore are at the top of the tree with outstanding average gains of above 35 per cent. Among the major European markets, Italy is the star rising by 24 per cent, the US market as measured by the MSCI Barra's index is up by 20 per cent, compared with the S&P 500 rise of 29 per cent from its nadir.

The sharp rally of global markets shows once again that the sentiment cycle never changes. Delusion and irrational exuberance are moods at the peak and as the markets turn down they are followed by disbelief, anxiety, panic and finally irrational gloom.

The true bottom of the market was the panic after the Lehman crash during the early Northern hemisphere winter. In the US, the number of new lows continued to fall when a further slide in financial stocks caused the S&P 500 to briefly touch the low of around 680 points, early March. Most other stocks were above their October/November 2008 lows.

Several Asian markets experienced similar trends and the same applied to Europe. The markets, unsurprisingly, have begun to correct following the surge. Once again there is disbelief in recovery.

Markets have become increasingly confusing for investors. Overwhelmed with good, bad and indifferent information from newspapers, continuous financial TV programmes, the Internet, newsletters and tip sheets, many previously conservative investors have become virtual day traders.

One pundit or Charlatan says the market is going up; the other down. They are generally talking their book and only original ideas are useful. Pollyanna, perma bulls say the bull market has begun and Casandra perma bears warn that we're experiencing a bear market rally that will be followed by the next downturn. Both say that they are 'realists'.

The truth, to be sure, is no-one really knows. A seriously successful wealthy multi millionaire investor and speculator, who doesn't wish to be quoted, says that he doesn't bother with bear and bull market predictions. He merely seeks opportunities.

The market psyche has changed from depression and fear of losing money to the fear of being left out. The danger for latecomer jittery money managers and investors is that they could rush in and be whipsawed by a sharp and lengthy correction. This especially applies to bombed out basket case banks, financial stocks and commodity stocks, some of which experienced rallies of 100 per cent or more.

In the event of a downward adjustment following such a steep and swift rally, the big question is what Asian, Wall Street, London and other markets will do next. Will they shift into the next stage of an upturn on expectations of strong economic revival? On the other hand, will markets languish in a flat, sideways trend or slide to the old lows?

On average, valuations of the majority of markets are still not expensive, provided there is not a further steep downward correction of the global economy. The best policy is to be patient, sift through the dross and apply intensive research and due diligence to find sound companies that can weather today's uncertain business conditions.