Need evidence that fundamental analysis is not a reliable gauge of future trend movements? Look no further than Asia's leading financial markets over the past six months.
Go back to early 2009. At the time you needed night-vision goggles to see through the pitch dark that surrounded the economies of the Far East. And, as the figurehead of the region's financial distress, Japan had gone from "Land of the Rising Sun" to land of the plunging sentiment and stock values.These facts from the time capture the scene:
- Export growth in February plummeted 49% from a year earlier, the steepest decline on record.
- Industrial production dropped 10.2% in January, the sharpest fall on record.
- Economic growth shrunk by 12.1% in the fourth quarter of 2008, the deepest contraction since 1974.
- Business sentiment stood at a 20-year low as corporate giants such as Toyota Motor Corp. recorded its first operating loss in 70 years.
- And finally: Unemployment rates were rising, the trade gap was widening to new records, and the Nikkei 225 stock index was circling the drain of a 26-year low.
Fundamentally speaking, it was the perfect bearish storm. And according to the mainstream experts, the only way to see Japan's economic prospects and overall stock prices advance was to turn the charts upside down.
In the words of one of Japan's premier financial authorities: "With recovery nowhere in sight, Japan faces the worst economic crisis since World War II." (February 6, 2009 Washington Post)
And: "At one time, it looked like Japan escaped the brunt of the financial crisis. Now we see it most damaged. Japan, a source of stability and liquidity at the onset of the crisis, is falling very fast." (February 26, 2009 AP)
Yet the exact opposite occurred. Rather than "falling very fast" from its March overhang, the Nikkei 225 began to RISE with great speed and strength in a 40% rally to a one-year high. It goes without saying: the powerful rebound was NOWHERE to be found in the fundamental script.
It was, however, the exact story laid out by the March 2009 Asian-Pacific Financial Forecast. In that publication, Editor Mark Galasiewski observed how Japanese officials were implementing a number of recession-fighting measures -- one year AFTER a 60% freefall in stocks and record-setting contraction in economic growth.
In Mark's words:
"Administrative authorities often intervene near the end of declining patterns because that is when the social pressure to do so is strongest -- that is, when faith in the market is weakest."
And --
"Pattern, price, time, and sentiment considerations are pointing to the end of multi-month, five-wave declines in most major Asian-Pacific indexes. Once complete, it should initiate rally for several months, at the least."
For Japan, China, Singapore, India, and Australia -- Mark's message was crystal clear: These markets are "ready to start making progress again."
Flash ahead to today and "progress" is exactly what these indexes have experienced. In the October 20, 2009 words of U.S. Federal Reserve Board chairman Ben Bernanke: "While risks to the economic outlook certainly remain, Asia appears to be leading the global economic recovery." (New York Times)