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I am an investment professional with 26 years' experience in investment research and portfolio management. More than 1 200 of my articles on investment-related topics have been published in various regular newspaper, journal and Internet columns (including my blog, Investment Postcards from Cape Town: www.investmentpostcards.com). I have also published a book, Financial Basics: Investment. I am Chairman and principal shareholder of South African-based Plexus Asset Management, which I founded in 1995. The group conducts investment management, investment consulting, private equity and real estate activities in South Africa and other African countries. I am 53 years old and live with my wife, television producer and presenter Isabel Verwey, and two children in Cape Town, South Africa. My leisure activities include long-distance running, traveling, reading, motor-cycling and scripophily.

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Chinese Shanghai Index Has Had Four Consecutive Down-Weeks

September 1st, 2009

As mentioned in yesterday’s edition of “Words from the Wise“, the Chinese Shanghai Composite Index has now recorded four consecutive down-weeks. The Index witnessed another massive sell-off this morning, declining by a further 6.7% to take its total loss since the peak of August 4 to 23.2%.

The losses happened on concerns of large Chinese share issuance and slowing bank lending. The banking regulator has already instructed lenders to raise reserves to 150% of their non-performing loans by the end of this year – up from 134.8% at the end of June, and the central bank has increased money-market rates to drain liquidity.

I have written a fair bit over the past two weeks about the overbought level of most global stock markets and also how China – a leading market on the way up – could be the catalyst for triggering a reversal of fortune in global stock markets.

Of the global stock markets I monitor, the Shanghai Composite (2,667) is the only one to have breached its 50-day moving average (3,125) and now has the key 200-day line (2,476) firmly in its sight.

31-augustus-09-2

Source: StockCharts.com

Interestingly, emerging markets have now seen two back-to-back weeks of declines and have been underperforming developed markets for four weeks running, as shown by the declining trend of the MSCI Emerging Markets Index relative to the Dow Jones World Index. Could this be a sign of a broad retrenchment in risk appetite?

31-augustus-09-3

Source: StockCharts.com

A global stock market correction could take the form of either a pullback or a consolidation (i.e. ranging). I suspect we may see at least some degree of reversion to the 200-day moving averages in a number of instances, but will be watching closely to ascertain whether we are dealing with a normal short-term correction or a more significant move threatening the primary trend. In the meantime, sit tight and be cautious as markets hopefully realign with the reality on the ground.

View original at: Investment Postcards from Cape Town


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