THE stock market is stalled in tight trading which has kept the Hang Seng Index in a 1,200-point range since June last year. Looking at the moving averages for the index, the market has failed to make any progress for 10 months, a period preceding the onset of the Sino-British row over the territory. The 90-day moving average, after making steady gains in the previous 12 months, began to level off from June last year and has failed to progress ever since. In the previous 12 months to June 30 last year, the 90-day moving average had risen 1,950 points or 53 per cent to 5,300, according to rough estimates. Since then it has risen just 700 points or 13 per cent to 6,000. The 30-day moving average over the 12 months to June 30 last year rose 2,100 points or 56 per cent to 5,800 points. Since then it has risen 550 points or 9.5 per cent. Since June last year the 30-day moving average has been merely oscillating in large arc movements around the 90-day line. The only line to remain consistent over the 22-month period is the 250-day moving average. This rose about 35 per cent between June 1991 and June last year. Since then the gain is 27 per cent, although in both cases the number of points gained was around the 1,200 mark. A negative signal is the conjunction of the 90-day line and the 250-day moving average, which to many chartists is an indication that investors should be extremely cautious about the stock market. The flat 90-day line may not be such a bad event, however. The stock market has risen in leaps and bounds since 1990, more than doubling its capitalisation in the process. A relatively short period of pause is not such a bad position to be in. Fundamentally, the market's prospective price-earnings multiples in 1993 and 1994 are 10.7 and 9.2, respectively. In real terms, corporate earnings growth might make it into double digits again this year, depending on the prevalent rate of inflation. The forward momentum in the stock market was initially stymied by concern at the worsening relations between the United States and China over the Most Favoured Nation trade status and the 301 investigation into China's barriers to US goods. This, along with the US presidential election, was some cause for caution, but it cleared up by mid-November. Then Sino-British relations worsened over Governor Chris Patten's plans to extend democracy in Hongkong. This uncertainty over the row remains in place , putting a cap on the market at the 6,500-point level with a floor being built at 6,000. Any progress in the index is likely to follow in the wake of a resolution to the political row. The market remains primed for further significant gains as it is fundamentally attractive, with strong liquidity being maintained and a macro-economic backdrop going in its favour, including the US economic recovery and the strong economy in China.
