Asian markets are likely to push higher in the next six to 12 months, with some benchmarks like the Straits Times Index moving above their post-crisis highs, predicts Eoin Treacy, strategist at Fullermoney, a research house covering global strategy and investment trends using an unorthodox mix of technical, behavioural and economic analysis.

Oil, gold and silver may also push higher in the short term, although their moves are beginning to look overextended, the affable Dublin-based Irishman tells The Edge Singapore in a phone interview. However, gold isn’t rising if your home currency is the Aussie dollar, and will be flat if it is Swiss franc. And if you’re a Singaporean investor, you’re better off staying in your home market, because the Singapore dollar is the strongest currency around and any gains from overseas markets may be tempered by a loss in translation.

Treacy is the younger face of Fullermoney, which was founded by David Fuller, a regular visitor to Singapore and Australia, where he used to hold his “The Chart Seminar”. Now in his late sixties, Fuller remains at the helm, after more than 30 years in the business. Treacy, a graduate from Trinity College Dublin, joined Fullermoney in 2003 after four years with Bloomberg.

 

So, how does behavioural technical analysis work? Take, as an example, the global financial crisis, which caused global markets to crash. “That had incredible shock-and-awe value for investors. There was the general perception that the other shoe was going to drop and that we would have another massive decline. However, when you’ve already had the big crash, the chances of that being repeated are quite slim,” Treacy says. This is because, despite the massive number of bankruptcies, central banks moved aggressively to stop more banks from going bust and that prevented the crisis from getting worse, he explains. “That was the start of the bottoming process. We then looked at leadership. We were lucky in that Asia and Latin America had been our favourite investment destinations for a considerable period.”

 

“Ninety-nine per cent of our method is based on chart analysis, reversion and position of prices relative to 200-day moving average [see sidebar],” Treacy says. “We incorporate a macro overlay and we take a reading on market sentiment. The chart pattern is a very good indication of what sentiment should be, and read that against what sentiment actually is out there in the market,” he adds. Monetary policies — whether central bankers are in tightening or loosening mode — and economic cycles are also taken into account.

 

Stock markets can move away from their 200-day moving averages, but at some point, when the diversion is too great, they will pull back towards them. “We’ve had the big reaction on Wall Street and in European, Latin American and Asian markets in November, and they’ve completed the reversion to their mean,” Treacy elaborates. “In the medium term — which can last from a few months to a year or more — the 200-day moving average is a reasonable trend mean. So, when the market becomes overextended, we’re looking for it to pull back towards the mean.”

 

But with market indices having risen way above their 200-day moving averages and then retreated back down towards them, Treacy is becoming increasingly bullish, especially on Asia. “We are still looking for a further consolidation or pullback on Wall Street and in Europe,” he says, adding that this scenario “falls very much within Asia’s leadership”.

 

Although Asian and emerging markets crashed in the wake of the US banking bust and subsequently recovered strongly, they are not carrying any debt baggage and credit problems, unlike the US and European banks. This was reflected in their greater strength during

the recovery in 2009.

 

“We see relative strength [in Asia] and we’re also looking at temporal leadership, where we follow the markets that find support first. Once you’ve had this very large reaction, find the markets that are beginning to show leadership. That early relative strength was clearly in Asia and Latin America,” Treacy says.

 

The next step is that Asian markets will likely push towards new recovery-highs and, in some cases, near all-time highs. “That’s an indication that the medium-term trend that began in late 2008, with Asia resuming its position of relative strength, is still very much intact. We don’t see any reason to change our bullish outlook on Asia, commodity-producing markets and Latin America,” Treacy notes.

 

Fullermoney also uses the concept of relative strength, which measures the performance of a stock or index against a benchmark index, or one market against another. This makes it possible to determine if a stock or market is leading or lagging its peers. Relative strength can also be used to identify stocks that are holding up better in a market decline or showing weakness in a market advance.

 

Treacy thinks the STI will go higher, much like a number of Asian indices, including the Shanghai Composite Index. “The STI found support at the 200-day moving average. I don’t foresee it taking out [breaking below] that low in the 2,900 area in the short to medium term. I suspect that we’re about to see a retest of the 3,500 level, and probably higher levels this year,” Treacy says.

 

 

What about the US and indices such as the Standard & Poor’s 500 Index? “The S& P 500 (1,324) is also looking quite bullish, and I suspect that it will see a retest of the 2007 peak (1,576) at some point this year or next,” Treacy says.

 

The big difference between the STI and the S& P 500 is the currency. As Treacy sees it, the Singapore dollar is one of the strongest currencies around, and the greenback one of the weakest. “From the perspective of a Singaporean investor, there is not a great deal to be made from straying very far from the domestic market in this kind of environment, because the gain in nominal terms could easily be lost in currency-adjusted returns,” he reasons.

 

With the US’ second round of quantitative easing coming to an end, what will be the impact on markets? The Fullermoney stra tegist reckons that there will be a significant injection of liquidity into the markets, similar to quantitative easing, but coming from the Bank of Japan. He points to the coordinated efforts by the G7 (Group of Seven industrialised nations) to weaken the yen following the earthquake in Japan on March 11. “The last thing that the Japanese need is a strong currency, and the G7 intervention has been weakening the yen in the last few weeks. That is raising a wall of liquidity,” Treacy says. “There isn’t going to be any shortage of yen in the next couple of years, as they continue to print in order to weaken their currency. Interest rates aren’t going higher either.” That has already boosted equity as markets recovered swiftly after the earthquake. “We’re already starting to see Asian, Eastern Europe and Latin American markets beginning to push towards new recovery-highs. That’s where the most likely beneficiaries of this new liquidity injection are likely to be,” he adds.

 

In contrast to his positive views on equity markets, Treacy is lukewarm towards commodities, including gold. “I will be very conservative and say gold is going to go up to US$1,500 an ounce, and that’s not very far. Although he agrees gold at US$1,455 is no longer cheap, he is not calling a top. “Major secular bull markets generally end in a phenomenal acceleration and we haven’t seen that yet in gold,” he says. He adds that while the yellow metal is rising in US dollars, yen, euros and pounds sterling, it is not rising in Aussie dollars at present and is moving sideways in Swiss francs.

 

Silver (US$40.10 an ounce) too is likely to rise further, but it is “quite overextended by any means”, as the metal is approaching an all-time high of US$49.45, attained in 1980. “I suspect it’s a considerably more risky project than gold at this stage,” he cautions.

 

“I think oil prices are only going to go up a little bit more, to US$147 per barrel. I think we’re going to see US$200 per barrel at some point, but I don’t think we’re going to see it in the next six months,” Treacy says. That’s because the high price of oil has actually led to technological advances in shale gas exploration and drilling in the US. Israel too has found large quantities of shale gas, and the extraction could be less complicated than initially thought. “Shale gas is an absolute game changer for the energy sector in the US, and we’re seeing large oil companies such as Exxon and Shell becoming major gas producers,” Treacy says.

 

Veteran stock brokers and analysts may remember attending “The Chart Seminar” workshops conducted by a younger Fuller, with his unique blend of charts, psychology and economic analysis at the Executive Club at OCBC Centre. This year, Treacy will be in Singapore on April 28 and 29, and Australia on May 3 and 4, with seminars in both countries sold out.