OPINION 

Pick a stock index

Nicole Elliott

Hours of analysis, reams of reports, endless discussion as to what country, what index, what sector and which company is the best investment in current conditions. Defensives, recovery stocks, cyclicals, growth, you name it, every investor has an opinion. The trouble, though, is that when things get ugly, the baby will probably get thrown out with the bath water.

Why are we suggesting that things might be on the turn? Charts, of course - but I'm sure our readers will be able to point to a host of other issues that might be worrying them. Escalating turmoil in north Africa and the Middle East for starters, fragmentation of European Union attitudes reflected in voter intentions, social inequality and a record number of refugees and forcibly displaced persons (UNHCR says 59.5m). We look at four disparate, lesser-known indices to see what they are saying.

For emerging markets we start with Brazil's Ibovespa, at a time when the country is struggling with its worst recession in 25 years. From a record high in 2008, we are currently halfway between here and 2008's trough, when the index lost 67 per cent of face value in just five months. Not for the faint-hearted and goes to show why they are sometimes known as 'go-go' stocks. Currently sort of in the middle of that range, a break of support at 45000 targets 30000 - again!

 

Brazil Ibovespa

 

In the eurozone we study Poland's Wig index because it was the only country not to suffer a recession after this century's financial crisis. Nevertheless, it too is well below 2007's record high, when it subsequently threw off 68 per cent of peak value (although a bit more slowly than Brazil), currently at the lower end of that range. Fifty- and 200-day moving averages crossed to a sell a fortnight ago. A close below the psychological 2000 targets 1400. Note that eurozone bourses look similar to this (except Germany, which hit a new record high this year) trading today well under 2007's high, Italy towards the lower end of the range and France at the higher end.

 

Poland Wig 20

 

In North America we look at Toronto, recognising its focus on oil, mining and agricultural commodities. After inching to a new record high last year (15685 and just above 2008's record at 15155) it has struggled with this band of resistance all this year. Dropping for three consecutive months (known as a 'three black crows' candle pattern) long-term moving averages have crossed to a sell. We are on track to retest last year's lows, where things might stabilise temporarily, although a drop to 12200 cannot be ruled out.

 

Canada TSX

   

Finally in Asia we study Taiwan's Taiex, deliberately steering clear of mainland China. This has also fallen steadily over three consecutive months with a 'death cross' (50- and 200-day moving average crossover) this week. Either side of the Pacific and yet so similar, it's quite extraordinary. For an index so heavily weighted to semiconductors, electronics and technology, it is worth mentioning that the 10000 area has capped since 1990. Very disappointing when you're at the cutting edge yet shareholders have little to show for it.

 

Taiwan Taiex

 

As a corollary to the above, don't forget interest rates where, other than the UK and US, many countries are still in the process of cutting benchmark rates, dragging bond yields down with many at record lows, in an attempt at stimulating the economy.

Related topics