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Chinese and Japanese Stock Markets: Both Look Timely
Normally at GillenMarkets, we stick to fundamentals, or value principles, when investing; however, from time to time, technical indicators can be useful guides to the markets too. At GillenMarkets, one of our preferred indicators is the 30 & 50-Week Moving Average.
The 30 & 50-Week Moving Average
The 30 & 50-week moving average indicator calculates two averages - from the past 30 and 50 weeks of prices - and uses them to judge whether buying or selling (i.e. demand or supply) has the upper hand in markets. If the 30-week moving average crosses above the 50-week, this is positive - the pace of buying has increased. The converse is bearish.
This indicator has a decent track record in various markets across decades, getting about two calls right out of every three. Of course, there is no silver bullet in investing!
Signals in Japan
The Nikkei Index gave its first positive signal in October 2012 (which we highlighted at the time) when Shinzo Abe took power and vowed to beat deflation. The market gained circa 66% in the next year, and has gone on to range trade for the past 15 months.
The most recent positive signal (difficult to see on the chart) was given in November 2014 when Japan's central bank initiated a new round of aggressive quantitative easing. This probably signals a fresh up-trend in the Nikkei index - a market which is currently trading at very cheap valuations.
Signals from China
The Shanghai Composite Index - a key equity market in China - has been in a bear market for four years, having lost over 20% since November 2010.
The latest positive signal in the Shanghai Composite came in September 2014, as positive economic news turned the tide in investor sentiment. Just last week, Chinese officials lowered interest rates for the first time since 2012 in response to an engineered economic downturn. Lower interest rates and quantitative easing provide a boost for equities as they augur well for future economic growth.
What We've Been Telling Our Subscribers
We have been highlighting these signals to our subscribers as they occur, arguing that these indicators are telling us that the probabilities have increased that Japanese and Chinese stock markets are back in uptrends.
In response to the positive trends in Chinese and Japanese equities, we have been highlighting to subscribers how to gain exposure to these areas.
Our preferred vehicle for Japan is an ETF, hedged back to the euro, which is protected against a weakening yen. For China, we have long been fans of the Fidelity China Special Situations Fund, a fund providing access to Chinese consumer companies and a play on the growth in the middle classes and consumer incomes in China.
All of the commentary around these issues - as well as a library of other proprietary research on markets, stocks, and funds - are available to all of our subscribers.
Rory Gillen is founder of GillenMarkets.com, the online investment website, and author of 3 Steps to Investment Success published in October 2012.