Comment: is it time for buying opportunities in Asian markets?
We asked Ruslan Mikhailov for some insight into recent US stock market plunges and advice for those looking to invest in Asia.
Last week the US market plunged for the first time during 2017. S&P closed 105 points below its open price and set the tone for another difficult week in the markets.
Initial movement had limited influence on global markets because the sell-off accelerated during last Friday (2 February), when most Asian markets were closed. This week the feedback loop dragged all global equity indices considerably lower. Nikkei lost more than 1500 points and Hang Seng lost approximately 1300 points. We are seeing increasing media articles about the potential sell-off on the Asian markets.
But is it really a time for buying opportunities? The answer is yes, it most likely is.
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There are some key features presented in the markets which make long positions credible and worthwhile. I am listing three to keep in mind:
First of all, all key Asian markets opened sharply and lower on Monday. This is a feature that’s often left overlooked. With a bad Friday on the US market, the tension seemed to increase during the weekends, reaching excessively high values before the first trading day of a new week. The best example of such a situation is the infamous Black Monday of 1987.
Another key characteristic worth mentioning is the trading volumes on Asian markets. Trading volume reached three year highs on Hang Seng and Nikkei futures on 6 and 7 February respectively. Such massive turnover implies a change in big market players’ positions because without them, these levels could not be reached. As a rule, if volume climax is observed on a falling market than the correction or bear market is most likely over. We can see clear pictures of such situations on 25 August 2015 on Nikkei and on 6 December 2017 on Hang Seng. Both times volume climaxes preceded big upward movements.
Finally, we should track volatilities. Volatilities reflect human overreaction. High volatility means fast markets, and fast markets mean emotional decisions are made. Emotional decisions from the public results in trend reversals. Volatility levels (20-day standard deviation) on Hang Seng and Nikkei surged to two-year-high records. Last time such increase in volatility was seen back at the beginning of 2016 when all markets started their strong and lasting up-trend.
Aforementioned reasons indeed strongly suggest buying opportunities on Asian markets (US markets didn’t have such extreme volume levels and seems to be much more unclear right now). However, it’s always better to wait for the price to make any positive changes before investments.
So for now it’s better to monitor markets and Asian blue-chips which usually show upward signals slightly before the rest of the market.
Ruslan Mikhailov is Head of Market Research & Trading at Tradingene (www.tradingene.io) - a new ready-to-use Blockchain-based platform that allows investing in trading algorithms