Figures in the fifth row show the percentage representation of MSCI constituent stocks in each of the respective stock markets. For instance, more than half of the total stock market capitalization of Korea is left out of the index, and 45% of Taiwan. The representation in Asean bourses is even worse. The YTD sideways performance of MXFEJ has masked the market uptrends in Asean and exciting sector themes and bottom-up stock situations in East Asia bourses. Below, we provide some examples.

Underlying Trends-A Picture Book
Chart 3 below shows the outperformance of Indonesia (+15% YTD to end-March), Thailand (+11%) and Malaysia (+6%). All these economies are enjoying good capital inflows and strengthening currencies. The Malaysian ringitt, a top performer, has appreciated +2.5% vs. the U.S. dollar. By comparison, China H-shares are down -5% (and the MXFEJ, flat).

Eoin Treacy's view At Fullermoney, we have long extolled the importance of banks as bellwethers for their respective stock markets and as necessary participants in medium to longer-term bull markets. The performance of the S&P500 Banks Index and perhaps more importantly the KBW Regional Banks Index relative to the S&P500 supports the cyclical bull market hypothesis. Provided these sectors remain in relatively consistent uptrends and perform more or less in line with the wider market, we can probably continue to give the benefit of the doubt to the upside.

Sentiment towards the wider banking sector in the USA, Europe and particularly Japan remains bearish but a number of Asian bank sectors are not only performing in line with their wider markets but leading them to new highs. The Indonesia Banks sector consolidated above the previous high from September and broke upwards in March. Following a the recent powerful breakout, the sector is somewhat overextended relative to the 200-day moving average and today's downward dynamic probably capped the short-term advance. However, a sustained move below 300 would be required to question the consistency of the medium-term uptrend.

We do not have a Malaysian banks sector index but the top three shares in the Kuala Lumpur Composite are banks and make up 31% of the Index. The largest, CIMB Group Holdings, occupying 12.05% of the Index has a similar pattern to the Jakarta Financials Index above and a sustained move below MYR12 would be required to question the consistency of the medium-term uptrend. Pub Bank Berhad (10.2% of the Index) retested the high near MYR12 today and is less overextended relative to the MA. Here too a sustained move below the ascending MA, currently near MYR11, would be hinder medium-term upside potential.

The Thai Banking Index broke upwards from the six-month range in late March to retest the upper side of the 10-year base. It pulled back from that area on today's downward dynamic and is currently forming a weekly key reversal. Given the continued political uncertainty, a retest of the progression of higher lows is now more likely and the Index needs to sustain a move above 330 to indicate that the bulls have returned to medium-term dominance.

While most of the above charts are somewhat overextended relative to their 200-day moving averages and at risk of a reversionary move, they are all leaders and retain sound medium to longer-term upside potential provided they remains to the left of rising MAs.