February 2022 Issue

© February 4, 2022
(data through February 3)

BOTTOM LINE
Several Asian-Pacific markets fell to new correction lows in late January against our expectations, but those additional
declines aligned most regional indexes near the start of multi-month third-wave advances.
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OVERVIEW
This chart updates the one we showed
in the video introduction to our January
2022 issue. The line at the bottom is the
MSCI Emerging Markets Index—
of which Asia now makes up more
than three-quarters of the components
by weight—divided by the S&P 500
Index. When the ratio is falling, as
it has been for more than a decade, it
means that the emerging markets index
is underperforming the U.S. index. But
could that downtrend now be reversing?
The ratio has fallen almost to the level
it reached in the early 2000s, just before
emerging market stocks launched into
a multi-year bull market alongside the
one in commodities then. We believe
that emerging markets have again begun
a bull market in line with commodities
that should offer huge opportunities for
investors over the next few years. There

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 The Asian-Pacific Financial Forecast — February 4, 2022

is no guarantee that the ratio will turn up now, but that now in the early stages of wave III up. Our analysis of
may be the way to bet since emerging markets have the various sectors of the index show that prices will
held up better than the S&P 500 this year. continue to rise steadily in 2022. (See discussion of the
agricultural sector below.)
For example, of the 92 global equity benchmarks
tracked by Bloomberg as of January 31, the top 10 Interest rates, as represented by the U.S. 10-Year
performers in U.S. dollar terms so far in 2022 were up Bond Yield, are rising in tandem. The fact that rates
about 7%-13%. All are emerging or frontier markets, are still low on a historical basis may mean that it is
with the top four in Latin America, three in Asia, two still very early in the commodity bull market. The
in Africa, and one in Eastern Europe. The S&P 500 pain of rising costs of living will become far worse in
ranked No. 76 with a loss of more than 5%. the future.
Even as emerging market ETFs were ending January For now, the world is still living in a golden age—a
higher than developed market ETFs, Bloomberg period of relatively low prices of goods and services
quoted a strategist at a European bank on January and plenty of social mobility, technological innovation
30: “I don’t believe emerging-market equities will be and economic growth. Enjoy it while it lasts—and
able to outperform developed markets this year. We be sure to use the opportunities in commodities and
will need inflation to start wearing off, the economic emerging market stocks to prepare for leaner times
growth differential against developed markets to several years from now. We identify 26 of them in
widen, and more certainty in China toward its this issue.
policies and regulations.”
Such sentiments, which
reflect the consensus
reported in the article, may
support emerging market
outperformance versus
developed markets in 2022.
We continue to monitor
emerging markets in Asia
and around the world as
well as the commodity
markets to identify
opportunities to help
investors survive and thrive
in this new era of steadily
rising prices of goods
and services.
The quarterly chart updates
our model for the new
era. The Bloomberg
Commodity Index
continues to rise in line
with our 2020 forecasts
for commodities (see red
text on chart). The 1963-
1968 wave 2 bear market
(outlined by the dashed red
rectangle) provided a fractal
analog for the larger 1980-
2020 wave II bear market
(outlined by the solid black
rectangle). The index is

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 The Asian-Pacific Financial Forecast — February 4, 2022

Broad emerging market ETFs

The iShares MSCI Emerging Markets ETF
(NYSE: EEM) fell to new correction lows
in January while its near-identical rival, the
Vanguard FTSE Emerging Markets ETF
(NYSE: VWO) held above its December 2021
lows. That divergence—a rarity for the pair—
should be bullish for both.

China’s tech bust in the global context

China’s internet sector, the largest segment of the
Sentiment considerations
broad Asian and emerging market ETFs, also fell to
Negative sentiment extremes
new correction lows in late January, but it too has
support a low. Last week,
likely ended its long bear market. The Invesco China
short sales as a percentage
Technology ETF (NYSE: CQQQ), a rival to the
of daily total value traded
Kraneshares CSI China Internet ETF (NYSE:
surged to a record in Hong
KWEB), is near the end of a three-wave correction in
Kong and to the second-
line with one in the ARK Innovation ETF (NYSE:
highest level on record
ARKK), a popular proxy for high-growth tech stocks.
in Japan (see Hong Kong
ARKK’s (W)-(X)-(Y) correction appears to be a larger
and Japan sections). And,
version of wave B of (X), which may provide fractal
anecdotally, Bloomberg
support for our forecast. The three-wave patterns
Businessweek in late
in the three ETFs are bullish for high-growth tech
January featured an image
stocks globally.
of a bronze statue of a bull covered in snow under the
title “The Big Chill,” with the subtitle, “Investors are We can see sentiment support for a tech stock bottom
bracing for more pain as a cold snap descends on the in Bank of America’s latest survey of global fund
market.” The late analyst and EWI friend Paul Macrae managers, whose net allocation to the technology
Montgomery observed over decades that finance sector fell to its lowest level since 2008, as Bloomberg
industry periodicals sometimes depict market fears on reported on Jan 21. The launch in November of the
their covers very close to significant lows. This one Tuttle Capital Short Innovation ETF (SARK)—
supports our forecast for Asian and emerging markets. which is designed to provide a daily return inverse of

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 The Asian-Pacific Financial Forecast — February 4, 2022

ARKK’s—also suggests that the high-growth tech bear Latin American stocks
is getting old, supporting a reversal in the sector now. Although this report is mostly about Asian-Pacific
SARK’s volume on January 24 surged to a record high stock markets, we want to acknowledge in the
more than seven times its already swelling average. Overview the performance of Latin American stocks
over the past month, because they show the potential
Conventional observers have attributed the sell-off
for other emerging markets that have underperformed
in Chinese tech over the past year to two supposed
global benchmarks since the 2007 high. While many
primary causes: (1) China’s crackdown on the sector,
global stock markets struggled in January, the iShares
which most analysts agree began on November 3,
MSCI Latin America 40 ETF (NYSE: ILF) gained
2020, when regulators suspended the IPO of Jack Ma’s
8.5%, a remarkable feat considering the declines in
Ant Group; and (2) threats by U.S. authorities to delist
many markets.
Chinese companies from the major exchanges. But,
from our perspective, the two regulatory developments
had absolutely no effect on the sector’s boom and
subsequent bust over the past few years.
First, Chinese regulators suspended Ant’s IPO just
days before the wave (3) high in CQQQ—after which
the ETF rocketed almost 12% higher over the next
five trading days to the wave (3) peak, following
the logic of the five-wave pattern. The timing of the
regulators’ action suggests that the crackdown is in
fact a classic example of government responding to
popular demands to rein in a dominant industry toward
the end of a boom. The ETF subsequently gained an
additional 29% over the next three months as it traced
out the final stages of the impulsive advance while the
government continued to fire warning shots and while
rumors of war circulated within the industry—hardly
the kind of price behavior a conventional analyst
would expect of a stock sector under seige.
The second piece of evidence supporting the
endogenous nature of the boom and bust in Chinese
tech comes from other global high-growth tech stocks. The global laggard during the commodity bear market
ARKK completed its own five-wave advance one day from 2008 to 2020, Latin America has rapidly vaulted
before CQQQ and subsequently corrected by 60%— to first position in 2022 as the commodity boom
more than CQQQ’s 49% decline—without any broad- accelerates. “Another decade lost is not something
based crackdown by government regulators. We have that we’ve written in the books yet. But the risk is
applied the same (A)-(B)-(C) count to CQQQ’s decline there,” the head of Latin America economics at a
as we have to Hong Kong’s stock market, where many multinational bank and former chief economist at
of the ETF’s components are listed and which has Mexico’s Finance Ministry told Bloomberg on January
diverged bullishly from the ETF in recent weeks. The 31. Such concerns support our wave count for the
textbook declines in the two ETFs support our view region’s stock markets.
that the bust in China’s tech sector was simply a local
Within the region, two lead horses so far in 2022
expression of a global trend.
are Colombia, represented by the Global X MSCI
Global high-growth tech stocks—including China’s Colombia ETF (NYSE: GXG), and Peru, represented
internet sector—traced out their 2021-2022 bear by the iShares MSCI Peru ETF (NYSE: EPU). GXG
market endogenously, and they should now trace out a completed a large three-wave correction at its 2020
new bull market endogenously. Government regulation low and is now rising in the early stages of a new bull
was and is just a sideshow and a convenient narrative market. EPU completed a large contracting triangle at
for journalists to try to explain the dynamic market its 2021 low and is now also rising in the early stages
moves over the period. of a new bull market. (see charts on next page)

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 The Asian-Pacific Financial Forecast — February 4, 2022
Commodities
This month, we will look at commodities through
the lens of the agricultural market. The Invesco
DB Agriculture Fund (NYSE: DBA) is poised to
accelerate in wave (3) up. Agricultural prices are
rapidly making up the ground they lost during the
2008-2020 bear market, and we expect that reality to
continue to bedevil consumers, businesspeople and
governments. Agricultural companies are another way
to capitalize on the agricultural boom. For example,
Bunge Limited (NYSE: BG), which processes grains
5
and oilseeds and produces fertilizers, edible oils and
milling products, is also accelerating in a third wave.
It cleared resistance at the high of its wave B triangle,
after which prices sometimes rise quickly. BG’s large
cap rival Archer Daniels Midland (NYSE: ADM),
farm machinery manufacturer Deere & Co. (NYSE:
DE) and fertilizer producers CF Industries (NYSE:
CF) and Mosaic (NYSE: MOS) [not shown] are also
rising in third waves, reminding us of the agricultural
sector’s initial rise in the early 2000s.
 The Asian-Pacific Financial Forecast — February 4, 2022

CHINA
The CSI 300 Index, which combines Shenzhen
and Shanghai stocks, fell to new correction lows in
January. But the decline aligned mainland Chinese
stocks with the broader emerging market ETFs, of
which they are components, at the end of triple zigzag
wave (2) corrections. Also, the index has so far ended
wave (2) near the 38.2% retracement of wave (1), an
ideal Fibonacci relationship. The Xtrackers Harvest
CSI 300 China A-Shares ETF (NYSE: ASHR) [not
shown] should ride wave (3) up.

DAQO New Energy and solar stocks
The solar sector topped a year ago and may have
ended a correction in line with other global high-
growth tech stocks (see Overview). But the sector
could also be considered a commodity play because
solar competes as an energy source and because
raw materials now account for about 70% of the
cost of finished solar modules. The Invesco Solar
ETF (NYSE: TAN) completed a large contracting
triangle in 2020 in line with wave C of II down in
the Bloomberg Commodity Index (see Overview). It
has since traced out the first and second waves of a
large impulsive advance and is near the end of wave
(2) down of that advance. A leading stock in the
sector, China’s DAQO New Energy Corp. (NYSE:
DQ), is ending wave 4 down of (3) up near a lower
channel line. Conservative investors may wish to wait
to see whether DQ can rally back into the channel
to test the durability of the low in the stock and the
sector overall.
Solar is now the cheapest source of energy in much
of the world, and it looks likely to keep expanding
its share of the total energy market in the future. But
the ever-falling production prices that have fueled
the technology’s gains for more than a decade are
probably near an end. In the past year, prices for solar
panels have surged more than 50% while battery
prices are rising for the first time ever. “Commodity
prices will be the sole determinant of module prices,”
an energy researcher told Bloomberg on January
20. Rising interest rates will also increase the costs
of industrial-scale solar projects. “One of the single
most important inputs that go into these highly
levered projects are rates,” an analyst at an American
bank added.
Depending on the climate in which you live, going
solar may help to defray rising energy and heating
costs—and an investment in solar stocks may
pay for it.

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 The Asian-Pacific Financial Forecast — February 4, 2022

HONG KONG
& SINGAPORE
The Hang Seng Index and the
Straits Times Index continue to
advance in third waves.
While China’s internet sector fell
to a new correction low in late
January (see Overview), the Hang
Seng and the sector’s relative
strength leader, Tencent Holdings
(HK: 700, US: TCEHY),
held above their early January
lows. That divergence should
be bullish for Hong Kong and
Chinese internet stocks overall.
As the Hang Seng pulled back
in late January, short sales as a
percentage of total value traded
on the Hong Kong Exchange
hit a record high of 21.4%.
Interestingly, the three previous
extremes in the ratio in recent
years have all occurred on tests
of lows, rather than on the lows
themselves. The record extreme in
the ratio during a test of the wave
2 low in the Hang Seng supports
our forecast of wave 3 up in Hong
Kong stocks.
The iShares MSCI Hong Kong ETF (NYSE:
EWH) tracks Hong Kong stocks, and the iShares
MSCI Singapore ETF (NYSE: EWS) tracks
Singapore stocks.
JAPAN
The Nikkei 225 fell to a new correction low but
the resulting wave (2) pattern counts well as three
waves with a contracting triangle in the wave B
position. Wave C approximately equaled wave A,
a common relationship. The iShares MSCI Japan
ETF (NYSE: EWJ) probably ended its wave (1)
advance at its September 2021 highs. Japanese
stocks are now in their most bullish position since
the 2020 lows.
Secondary indicators
Other considerations support a significant low now.
At the January lows, the Nikkei 225 DSI almost
fell to 6, a level that has tended to mark significant
lows since the 2009 bottom. Also, on January
27, the day of the wave (2) low, short sales as a
percentage of total volume on the Tokyo Stock

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 The Asian-Pacific Financial Forecast — February 4, 2022

Exchange surged to 52.9%, the second-highest

level on record in Japan or any other contemporary
market. Lastly, momentum has reached an oversold
extreme that may also support the start of wave
(3) of 3 up.
INDIA
The Nifty 50 Index failed to follow the Nifty
IT Index to new highs, and both indexes instead
turned down sharply in late January. We are not sure
whether the correction has ended, but we think that
the recent sell-off is signaling sector rotation within
an ongoing bull market rather than an intermediate-
term top. That’s because the Nifty Bank Index
has asserted itself in the wake of the late January
pullback, possibly signaling new leadership by
the financials sector. Our January 2022 issue said
that India’s largest bank by market capitalization,
HDFC Bank (NSE: HDFCBANK, NYSE: HDB)
had likely begun wave (3) up in line with emerging
markets in U.S. dollar terms. The nation’s second-
largest bank, ICICI Bank (NSE: ICICIBANK,
NYSE: IBN) [not shown] also shows good relative
strength and should rise with the banking sector.

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 The Asian-Pacific Financial Forecast — February 4, 2022

Cognizant Technology Solutions

India’s tech sector may have relinquished its leading
role in the bull market for now, but the recent
correction may still offer opportunities in the sector’s
strongest names. For example, Cognizant Technology
Solutions (Nasdaq: CTSH) may have ended a
pullback in the early stages of a wave 3 advance,
having sold off below its 50-day moving average (not
shown) and then rallied above it to trade only 6% off
its all-time highs. Stocks that show such reslience
during corrections often lead the next rally.
AUSTRALIA
At its January low, the ASX All Ordinaries Index fell
to near the end of the previous fourth wave of lesser
degree (the end of the wave 4 contracting triangle),
where corrections often end. Having corrected along
with other global high-growth tech stocks (see
Overview), the ASX 200 InfoTech Index may also be
close to a second-wave low.
The iShares MSCI Australia ETF (NYSE: EWA)
tracks Australia’s stock market.
Atlassian
Amid the washout in high-growth tech stocks, one
of the more resilient names has been Atlassian does the 2019 correction, the alternate count remains
(Nasdaq: TEAM). The stock undercut its long- a viable scenario, and would become probable if the
term trend channel and has since rallied back near stock were to fall and stay below its January low of
the lower channel line and its 200-day moving 273. Conservative investors may wish to wait to see
average (not shown), possibly completing a wave (4) whether the stock can rally back into the channel to
correction in a throw-under. While we believe the test the durability of the wave (4) low.
recent correction counts better as a fourth wave than

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 The Asian-Pacific Financial Forecast — February 4, 2022

SOUTH KOREA & TAIWAN

The KOSPI declined sharply
to new correction lows in late
January but the sell-off revealed
a beautiful fractal similarity
between wave 2 (outlined with
the dashed red rectangle) and
wave (2) (outlined with the solid
black rectangle), right down to
the pattern of the internals of their
waterfall C-wave declines. The
fractal relationship raises the odds
that the correction has ended.
North Korea missile tests
North Korea may have
inadvertently provided sentiment
support for a significant low. The
nation carried out more missile
tests in January than in any month
since Kim Jong-un came to power
a decade ago. The test it carried
out on January 30—two days after
the low in the KOSPI—was its
most powerful since 2017.
A Seoul-based expert on North and South Korean
relations told the New York Times on January 30
that “it has been the same cycle repeating itself:
North Korean provocations, followed by a round
of negotiations and their collapse and then a pause
in diplomacy. North Korea is now starting the
cycle all over again, raising tensions with missile
provocations.” EWI’s studies have shown that
cycle to be influenced by the same social mood
fluctuations on the Korea peninsula that drive the
waves in the KOSPI. The timing and severity of this
most recent Kim tantrum support our wave count for
the index from a contrarian perspective.
The iShares MSCI South Korea ETF (NYSE:
EWY) tracks South Korean stocks.
The Taiwan Index held up well during the January
volatility and continues to lead the region, which
positions it to continue leading in wave (3) up.
The iShares MSCI Taiwan ETF (NYSE: EWT)
tracks Taiwanese stocks.
The Asian-Pacific Financial Forecast (APFF) is published by Elliott Wave International, Inc. Mailing address: P.O. Box 1618, Gainesville, Georgia, 30503, U.S.A. Phone: 770-536-0309.
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