Tuesday, 25 September 2012

QE3 Announcement & After Effects on Asian Stock Indices

QE3 has been announced and the world saw a big pop in the stock market on that date.  The followup action however has been quite a bit less convincing in the US where the S&P is almost at the same level as before the announcement (but after the hints).  See below for the S&P 500.

As mentioned earlier, the US market is not so hot after.  How did India Sensex (ETF suggestion: EPI) fare?  Relatively well actually with a big pop (note that Asia was delayed a day vs US time) that day.  It was tettered back and forth a bit but still holding a good 3.8% above where it was before the announcement.  Note that India has been on a relatively good upward trend beforehand so QE3 looked to reinforce the move.

The Shanghai market (ETF Suggestion: FXI) didn't fare nearly so well, but that's to be expected as China has been making new low for a while now.  While QE3 gave it a nice pop, it is now down 1.3% after being up 4% at one point.  Again, similar to India Sensex, QE3 has reinforced the downward trend that was taking root beforehand.

Looking at Tokyo Nikkei (ETF Suggestion: EWJ), a similar story where it was up 3.3% vs the pre-announcement but is now only up 1%.  Still better than nothing.  There does look to be a resistance line and support line for the Nikkei at this point however and a narrowing trading channel.  If the trading channel is correct, Nikkei still has a bit to go before it hits support, though it is at the 200 day moving average. 

Lastly, lets look at Philippines (ETF Suggestion: EPHE).  Ok I know what you're asking - India, China, Japan?  Definitely the big names of Asia, but Philippines?  Well if you've been reading the blog, you'll notice my previous post  making the case that Philippines has the potential to be one of the biggest emerging market opportunities in the next few decades as the current BRICs slow down.  So is that call justified?  Lets look at QE3 impact.

After QE3 announcement, the Philippines PSE Composite Index  jumped and has since subsequently moved down to 1.5% gain, respectable but in the middle of the pack with Japan.

So overall, India has been the biggest winner at 3.8% gain, followed by Philippines at 1.5%, Japan at 1%, and China rounding the bottom at -1.3%.  If you read my previous post about the historical effects of QE on emerging markets, you'll see that while emerging markets have done well in QE, they did underperform the US markets.  So while India looks ok so far, be wary of playing emerging too much.

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