Technical Analysis: Thai Stocks Surge, Ignore Bollinger Signals:Taiwan ‘Pain Trade’ Will Extend Stock Rally

(Bloomberg) -- Thai stock trading momentum will drive the benchmark index 13 percent higher in two months even after it triggered Bollinger Band sell signals for three straight days, Chart Partners Group Ltd. said. The SET Index will rise to 600 by July, Thomas Schroeder, managing director of Chart Partners in Bangkok, said in an interview yesterday. It was at 529.65 at 11:47 a.m. local time. Technical analysts, who make predictions based on price and volume charts, must overlook breaches of the so-called Bollinger Upper Band the past three days, Schroeder said.“The Thai market really wants to go up as it keeps breaking the key resistance level,” Schroeder said. The resistance is “unclear” now because “people who are placing their buying orders don’t care what prices they get.”Trading turnover on the Stock Exchange of Thailand yesterday jumped to 31 billion baht ($857 million), the highest since May 22, 2008. The SET Index has gained 7.3 percent this week, set for its best weekly performance in six months.

Bollinger bands are designed to alert investors when a security rises too high or falls too low by comparing its price to the average level over the past 20 days. If the stock is 95 percent away from the average, a rebound or decline may be at hand, Bollinger’s model says.The SET Index rose for a fifth day, climbing 1 percent to 528.12 today, the highest since Oct. 7. The gauge has gained 16 percent this year, the second-worst performer among six Southeast Asian countries that have stock markets. Vietnam’s index is the region’s worst performer, with a 15 percent gain.
Thailand’s “rally momentum has just started” as the index catches up with gains in other Asian markets, said Schroeder, who expects the gauge to reach 550 this month.
The “market appears to be a laggard and may have a late rally,” he said. “We expect other Asian markets such as Hong Kong, Korea and Taiwan to peak in June after rising so much. We will see more money coming in as investors have to rotate their money to somewhere.”

Taiwan

Taiwan’s stock market rally will continue as global fund managers, who had shunned the island, buy shares to avoid lagging further behind their benchmark, F&C Asset Management said.“Taiwan is what I would call the ultimate pain trade,” Jeffrey Chowdhry, London-based head of emerging-market equities at F&C, which oversees about $135 billion, said in an interview. “Foreign investors have been massively underweight.”The benchmark Taiex index has jumped 17 percent since April 29, when Taiwan said Chinese investments will be allowed for the first time since a civil war ended in 1949. The island’s stocks are the world’s second-best performer since then on speculation six decades of hostility with the Communist mainland are over, enabling deeper ties with the world’s third-biggest economy.Taiwan was the biggest consensus “underweight” market among global emerging-market fund managers in March, based on the latest data, according to Cambridge, Massachusetts-based research firm EPFR Global and New York-based JPMorgan Chase & Co. That means the funds held fewer Taiwan shares than represented in the MSCI Emerging Markets Index, a benchmark for stocks in 23 developing nations.

China Mobile Ltd. on April 29 said it agreed to buy 12 percent of Far EasTone Telecommunications Co., while Taiwan said it will let mainland Chinese institutional investors apply the next day to directly buy shares and futures listed on the island’s bourses. Taiex shares soared the most since 1991 on April 30.“People are realizing that this China, Taiwan rapport is a long-term, secular issue,” Chowdhry said yesterday. “They now need to think about Taiwan being part of greater China.”
Foreign investors have started pouring money into Taiwan stocks. They made NT$96.5 billion ($2.9 billion) of net purchases during the past four days, compared with NT$17.4 billion of purchases from the start of this year to April 29, according to Taiwan Stock Exchange data compiled by Bloomberg.Singapore’s Straits Times Index the best performer among 85 indexes tracked globally by Bloomberg since April 29, as bank earnings beat analysts estimates.