Asian Stocks May Fall, Moving Average Shows: Technical Analysis

(Bloomberg) -- A five-month rally in Asian stocks may falter, dragging a regional index down as much as 14 percent, according to technical analysis by CLSA Asia Pacific Markets. The MSCI Asia excluding Japan Index climbed 1.8 percent to 432.02 yesterday, bringing the gauge’s premium to its 200-day moving average to 35 percent, according to Bloomberg data. The last time the index traded at such a premium was in June 1999.“You are looking at stretched valuations based on this divergence,” Laurence Balanco, a Hong Kong-based analyst with CLSA Asia Pacific Markets, said in a telephone interview. “The index may pull back toward the 370-390 range.”

The MSCI gauge has surged 78 percent from a three-month low on March 2 on speculation a recovering global economy will boost earnings. About 55 percent of companies on the index that reported quarterly earnings since early July have beaten analyst estimates, according to data compiled by Bloomberg.Information technology, consumer discretionary and financial stocks are “well-positioned” to outperform after this “correction,” he said. About 58 percent of the companies that beat quarterly earnings estimates are from these sectors, according to Bloomberg data.