February 2024 Issue

© February 2, 2024
(data through February 1)

BOTTOM LINE
As Chinese stocks end their bear market and begin a new bull market, the broad Asian-Pacific and emerging market
indexes should soon break out of their sideways trends of the past 18 months.
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OVERVIEW
We can see how the final stages of China’s
bear market weighed on the broad emerging
market indexes in the performance of two
ETFs over the past three years. While the
iShares MSCI Emerging Markets ETF
(NYSE: EEM) has languished (see bottom
graph), the iShares MSCI Emerging
Markets Ex-China ETF (Nasdaq: EMXC)
has held up better. But with Chinese stocks
soon to join the regional rally (see China
section below), both ETFs are likely to
make considerable progress as they continue
advancing in a series of first and second
waves in the early stages of wave V up.
Volume tends to expand as bull markets
advance—especially in third waves.
Emerging market stocks logged a record
$12.1 billion of inflows in the week through
January 24, led by Chinese stocks, which

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 The Asian-Pacific Financial Forecast — February 2, 2024

logged their second-highest inflows ever, Bloomberg

reported on January 26. We acknowledge that value
traded does not necessarily equal volume, but record
and near-record value traded is probably significant.
As long as EEM holds above its January lows, we
will consider the late January rush into emerging
market stocks to be a kickoff to a third-of-a-third-wave
advance.
Geopolitical events continue to simmer angrily, laying
bricks in the wall of worry the market is climbing.
Israel continues its assault on Gaza and the Houthis
continue their attacks on Red Sea ships almost daily.
North Korea continues to test missiles. And the war
in Ukraine never seems to let up. It remains a great
environment for stock prices across the developing
world to power higher.
COMMODITIES
Energy and base metals
As mentioned above, the Invesco DB Energy Fund
(NYSE: DBE) would look best with one more sell-off
within wave 2 down—to complete wave (C) below
the end of wave (A)—but the correction is in its final
stages. The Invesco DB Base Metals Fund (NYSE:
DBB) in January appeared to break down decisively
below support near the 50% retracement of wave 2,
but we believe it will prove to be a false breakdown at
the end of a double zigzag correction.
Our December 2023 issue showed how base metal
copper, which is considered to be a leading economic
indicator, has been leading emerging market stocks
higher. It continues to build on that relative strength,
now trading 25% above its July 2022 high. The
approaching ends of the corrections in energy and
other base (or industrial) metals now also point to
an economic rebound on the horizon in emerging
markets.
Agricultural and broad market commodities
Rare earths miners
Commodities have ebbed and flowed with emerging
In line with energy and base metals above, miners of
market stocks for decades, and their recent ebb
rare earth minerals are also approaching the ends of
appears to be ending along with that in EM stocks.
their bear market. The VanEck Vectors Rare Earth/
The Invesco DB Commodity Index Tracking Fund
Strategic Metals ETF (NYSE: REMX) may end
(NYSE: DBC) would look best with one more sell-off
wave (2) down near the 61.8% retracement of wave
within wave (C) of 2 down, in line with its largest
(1) up at 45.
component, energy (see DBE below). Nonetheless, the
correction is in its final stages. In fact, the leader of the China produces about 60% of the world’s rare earth
next uptrend may have already shown its hand. We had minerals and processes about 85% of them—a by-
expected the Invesco DB Agriculture Index Tracking product of the willingness of developed nations to
Fund (NYSE: DBA) to follow DBC down to new outsource the highly toxic mining and refining process
correction lows, but it has instead diverged upward, to a developing nation that has lower production
potentially positioning it to lead wave 3 up. costs and fewer environmental regulations. China
in July restricted exports of the so-called critical

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 The Asian-Pacific Financial Forecast — February 2, 2024

Lithium miners
Lithium miners are also approaching the end of
their bear market. The Global X Lithium Battery
Tech ETF (NYSE: LIT) will probably end wave (2)
between the 50% retracement of wave (1) near 42
and the 61.8% retracement near 34. See the Australia
section for a discussion of how the industry may be
showing signs of capitulation toward the end of the
correction.

minerals gallium and germanium, which are used

in chip-making, and in October restricted exports
of another critical mineral, graphite, which is the
heaviest component of EV batteries by weight. Those
restrictions appear to be related to China’s ongoing tit-
for-tat trade war with the United States, which started
amid the volatile global social mood swings of the
past several years. But, in general, resource-related
conflicts are likely to become increasingly common
as the ongoing commodity bull market from 2020 Solar stocks
continues. In line with commodities and new economy miners,
solar stocks are ending their bear market as well. The
Invesco Solar ETF (NYSE: TAN) turned up at the
61.8% retracement of wave (1) up in November, so
prices are in the ideal range for a bottom. The wave
(2) decline may in fact be wave C of a much larger
contracting triangle pattern from the 2008 high. But
that wave count would still imply significant upside in
wave D up in the intermediate term.
Let’s look now at mainland Chinese stocks, which are
likely ending their nearly 17-year bear market amid
extremes in relative valuation and breadth.
CHINA
The Shenzhen Composite Index and the Shanghai
Composite Index are ending wave E down of their
wave IV contracting triangles in line with the end of
wave 2 down in Hong Kong. (See Hong Kong section
following.)

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 The Asian-Pacific Financial Forecast — February 2, 2024

ChiNext breadth
China’s stock-bond yield spread The ChiNext Index of microcap stocks has reached
The best secondary evidence we know of to support breadth and momentum extremes that also support a
a major low in mainland Chinese stocks comes from significant low in mainland stocks. Index members
Bloomberg analysts Ye Xie and Amy Li, who on Jan trading above their 200-day moving average fell to
4 this year posted an article titled “Chinese stock 4% of the total in January. After the five other times
indicator with 100% success rate is flashing buy.” The over the past 13 years the indicator fell that low, the
indicator is the spread between the earnings yield on index bounced sharply for at least two months. But
the CSI 300 Index—which represents the 300 largest momentum has also reached a record low, which may
stocks on the Shanghai and Shenzhen exchanges—and support a more sustained advance. After the previous
the China 10-year bond yield (see chart). As they noted record low in 2018, the index tripled in less than three
in the article, there have been “five previous periods years.
in almost two decades that the stock-bond yield gap
Utilities sector
has reached 5.5 points or more, including during the
Even as the major indexes fell to new correction
2008 financial crisis and the pandemic in 2020. Stocks
lows in January, the CSI 300 Utilities Index was
rose in the following 12 months each time, with a
approaching multi-year highs. Utilities may seem an
whopping return of 57% on average.”
unconventional choice to lead a new bull market—but
This week the 10-year government bond yield fell to not in China, where energy consumption continues
2.47%, its lowest level in nearly 22 years. An analyst to soar and alternative energy sources are rapidly
at a mainland brokerage said that the “deepening replacing coal. Coal consumption will begin to decline
losses in stocks is spurring extreme risk aversion in 2025, officials estimate.
among local investors, fueling large inflows into the
Clean energy—meaning hydroelectric, nuclear, solar
fixed-income products as they seek haven assets.”
generation and panel production, electric vehicles and
(Bloomberg, 1/23/24) But, with mainland stocks
batteries—accounted for 40% of China’s economic
ending their bear markets, stock and bond investors
growth in 2023, or a record $1.6 trillion, which
should in fact prepare for a dramatic reversal of recent
represented a 30% jump from the previous year,
trends.
according to the Centre for Research on Energy and
Clean Air. (Bloomberg, 1/25/24) That means that,
without clean energy’s contribution, China’s growth

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 The Asian-Pacific Financial Forecast — February 2, 2024

Evergrande liquidation order

In mid-2021, the world’s most indebted property
developer, China Evergrande, became the focus
of China’s slow-moving (and ongoing) property
crisis. After the company failed to make a loan
interest payment in September that year, our October
2021 issue noted that bankruptcies, bailouts and
nationalizations often punctuate the end of significant
corrections in major stock indexes. We said that,
whatever form it would take, Evergrande’s demise
would likely play a symbolic capitulatory role toward
the end of the correction then unfolding.

would have been 3% rather than the reported 5.2%.

Investments in solar generation, panels, electric
vehicles and batteries drove the bulk of the increase.
China installed more solar panels in 2023 than
any other nation has installed in total, widening its
already seemingly unassailable lead in renewable
energy production. And the nation intends to triple
solar and wind production from 2022 levels by 2030
(compare to chart). “It’s mind blowing,” a Shanghai-
based energy analyst said about the scale of the plans.
“There’s nothing in history you can benchmark this
against.” (11/26/23)
China’s increasing demand for power and the recent
breakout in the utilities sector are consistent with our
long-term wave count.
HONG KONG & SINGAPORE
Singapore’s Straits Times Index ended its wave 2
down in December as a zigzag and Hong Kong’s
Hang Seng Index ended its deep wave 2 down in
January as a double three.

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 The Asian-Pacific Financial Forecast — February 2, 2024

The bear market lasted far longer than we expected

at the time, but our observation may remain relevant
now that the legal system has taken aim at Evergrande.
On January 29, Bloomberg reported that a Hong
Kong court ordered the liquidation of the company,
which has been “the poster child of a market bust that
shows few signs of ending.” It is not known whether
China’s court system will recognize and implement the
ruling, as China’s priorities remain project completion
and social stability rather than creditor concerns.
Nevertheless, the Hong Kong decision may indeed
be the symbol of capitulation toward the end of a
correction that we suggested.
Valuation considerations
If the Hang Seng Index were to fall to new bear-
market lows, then the index’s price-to-earnings ratio
would fall below the 8 level (a level it has reached
during only seven other bear markets over the past 50
years), consistent with our long-term wave count.
JAPAN

The Nikkei 225 Index and the TOPIX Information

and Communication Index are rising in wave 3 of (5)
up. results, investors have worried about the sector’s
impact on the general market. “There is increasing
INDIA caution about banks’ earnings,” a Mumbai-based
The Nifty Bank Index led the Nifty 50 Index down in securities analyst told Bloomberg. “The banks are
January in a short-term correction within its wave (3) seeing a contraction in net interest margins when we
up. are in a higher interest-rate trajectory, which is a major
HDFC Bank challenge for the lenders.” (1/29/24)
On January 17, India’s largest private lender, HDFC The bank sector may look sluggish compared to the
Bank (NYSE: HDB; NSE: HDFCBANK) plunged Nifty, but that has been true for much of the bull
9% after it reported quarterly results that indicated market since 2020. One reason for the sluggishness
a slowdown, helping to drag the Nifty Bank Index may be that the U.S.-traded shares of HDFC have been
down by 4%. As more banks have reported worsening
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 The Asian-Pacific Financial Forecast — February 2, 2024

tracing out the final stages of a wave 4 contracting were designed to benefit the vast majority of citizens—
triangle. Most investors who sold on the earnings news middle-income earners—while hurting upper income
probably did not realize that they sold at the end of the earners. But the opposition and the media took the
pattern, near the start of wave 5 up. opportunity to paint the announcement as a broken
promise that represented one of the biggest gambles
AUSTRALIA
of Albanese’s career. The government “had to do
this,” a professor at the University of Canberra told
Bloomberg. “The prime minister was under incredible
pressure.” (1/26/24)
The article said that “broken election promises have
proved so politically toxic they have toppled several
Australian leaders, including Labor Prime Minister
Julia Gillard and Liberal leader Tony Abbott.”
Conventional observers often do attribute political
volatility to broken promises—U.S. president George
H. W. Bush famously lost the 1992 presidential
election after reneging on his promise of “no new
taxes”—but EWI’s perspective is that electoral politics
are in fact driven by the same social mood fluctuations
that drive stock market trends. Bush plunged in
popularity from being the highest-rated U.S. president
then in the history of Gallup polling in 1991, in the
wake of the First Gulf War, to losing the election about
a year later to a relatively unknown state governor
The ASX 200 InfoTech Index continues to lag the
named William Jefferson Clinton—all because the
general market, but the ASX All Ordinaries looks
negative social mood of the mid-1990s rapidly
likely to break out to record highs during wave 3 up.
worsened during 1992.
Broken promises
In the Australian examples, Julia Gillard and Tony
On January 26, Australian Prime Minister Anthony
Abbott lost their jobs in 2013 and 2015 amid the
Albanese announced a change to a tax plan that he had
negative social mood period that followed the global
earlier maintained he would not touch. The changes
financial crisis of 2008. As in 1992 in the United
States, the mood in Australia during the period was
far worse than the benchmark stock indexes implied.
In this case, a U.S. dollar-denominated ETF traded
in the United States, the iShares MSCI Australia
ETF (NYSE: EWA) provides a better measure of the
mood in Australia. The ETF has traced out a fourth-
wave contracting triangle since its 2007 high. The
2013-2015 period—the most politically tumultuous,
witnessing four prime ministers in office—occurred
right in the middle of wave C of the pattern. The
current ruckus over Albanese’s broken promise makes
sense because it has occurred in the final stages of
wave E of the pattern. But with Australian stocks
likely to rally well into the elections due in mid-2025,
the prime minister’s gamble will likely appear to pay
off.
Core Lithium
Our Overview this month makes the case for a low in
lithium stocks. A prominent Australian lithium miner
in January may have provided technical and sentiment
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 The Asian-Pacific Financial Forecast — February 2, 2024

in three waves to near the low of the previous fourth

wave of lesser degree, where corrections often end.
Lynas Corp.
Price action in an ASX-listed company, Lynas Corp.
(ASX: LYC), may support our analysis that rare earth
miners are bottoming (see Overview). LYC is ending
wave (4) of an impulsive advance from 2015 in a
throw-under.

SOUTH KOREA & TAIWAN

The KOSPI and the Taiwan Index are rising in third-
wave advances.

information consistent with that outlook. On January

5, Core Lithium (ASX: CXO) said that it was
suspending mining operations to reduce cash outlays
amid a significant decline in prices of spodumene, the
lithium-bearing rock. “We believe Core’s production
cut will only be the first, and we are looking for more
and larger Australian spodumene miners to make
similar announcements soon,” Bloomberg New Energy
Finance wrote in a note. Investors may welcome
such announcements because they could imply that
sentiment in the sector is near a low. CXO has fallen

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 The Asian-Pacific Financial Forecast — February 2, 2024

Semiconductor stocks complete its impulsive advance from 2008. Between

Semiconductor stocks have been on fire in recent the laggards and the leaders, the writing is on the wall:
months. Although Taiwan Semiconductor The infotech boom that started at the end of the global
Manufacturing Co. (NYSE: TSM) has lagged its financial crisis of 2008 is approaching its end.
peers in the iShares Semiconductor ETF (Nasdaq:
For the next long-term bullish trends, we are watching
SOXX), its more pronounced correction in the third
emerging markets and commodities.
quarter of 2023 suggests that the sector’s advance
since then is a small third wave within a fifth and final
wave up.

But we will be watching TSM’s lagging behavior as

the SOXX traces out the final stages of its wave (5)
up, because it may warn of a top in the sector. Some
months from now, sector leader NVIDIA (Nasdaq:
NVDA) will likely trace out a fifth-wave throw-over to

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