We are not convinced that Asian markets will rise much further into
year-end. While the path of least resistance remains up - supported by
seasonality, easy liquidity conditions, a weak dollar (key to currency
reversal and low inflation concerns across the region), the potential for
positive reform announcements out of China and further evidence that
the global growth backdrop is improving - we think that the
magnitude of recent price gains and proximity to year-end might limit
adding to long positions with the next move likely to be on the short
side. Admittedly, none of the conditions necessary to trip markets up
are prevalent.
However, the window for remaining bullish is closing
before fears of QE tapering and the consequences of a stronger US$
re-emerge. A low-conviction, low-volume squeeze higher is an
opportunity to trim positions, particularly for ASEAN markets where
external vulnerabilities have diminished but not disappeared.
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