Oversold tag is little comfort to Asia stock traders

By BLOOMBERG

HONG KONG • Asian stocks are set to enter a bear market, and even a technical level that often anticipates rebounds is little consolation for traders who have seen more than US$4.9 trillion (RM20.58 trillion) of equity values vanish this year.

The plunge hit hard — the MSCI Asia Pacific Index has slumped 11% this month, its biggest slide since the height of the financial crisis a decade ago. Markets from Tokyo to Hong Kong and Seoul are down more than 10%, and most are in oversold territory.

The indicator that signals losses might have gone too far too quickly, known as relative strength index, has fallen below the 30 limit for 10 of 15 major Asian national gauges. While chart watchers often point to that key level as a reason to regain hope, this time is different.

“On a convincing rebound, it could trigger the crowded trade mentality effect as when everyone realises they have the same short position and sentiment shifts,” said Stephen Innes, the head of trading for Asia Pacific at Oanda Corp in Singapore. “However, I’m too bearish. While we will see periods of retracement from oversold positions, I think these will offer excellent opportunities to sell risk again. Risk aversion has a much stronger grip on markets than risk-on does.”

Concerns over peaking earnings growth, the US-China trade war, rising rates and a strong US dollar are converging to create a toxic cocktail that’s making many investors run for the exit. Asian equity indexes stand out as some of the world’s top losers this year, and foreigners have pulled en masse from funds tracking the region’s emerging markets.

In the US, the S&P 500 Index, Dow Jones Industrial Average and Nasdaq Composite Index were also in oversold territory after their Wednesday plunges, and so was the Stoxx Europe 600 Index.