Oversold Tag Is No Comfort This Time to Asia Stock Traders

(Bloomberg) -- Asian stocks have entered a bear market, and even a technical level that often anticipates rebounds is little consolation for traders who have seen more than $4.9 trillion of equity values vanish this year.

The plunge hit hard -- the MSCI Asia Pacific Index has slumped 11 percent 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 percent, and most are in oversold territory.

Oversold Tag Is No Comfort This Time to Asia Stock Traders

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

“On a convincing rebound, it could trigger the crowded trade mentality effect as when everyone realizes 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.”

IndexRSI LevelMonthly MoveDrop From High
VN Index28-11%-24%
Kospi 10024-12%-21%
Nikkei 22528-12%-12%
FTSE Bursa Malaysia KLCI Index24-5.9%-11%
S&P/ASX 200 Index21-8.8%-11%
S&P/NZX 50 Gross Index26-8.4%-8.6%

Concerns over peaking earnings growth, the U.S.-China trade war, rising rates and a strong U.S. 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 U.S., 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.

©2018 Bloomberg L.P.