Bloomberg News Summary from EW International

Asian stocks are due for their “largest correction” since rallying from their March lows as the region’s major indexes complete “intermediate tops,” according to Elliott Wave International Inc.

The benchmark MSCI Asia Pacific Index has climbed 62 percent from a more than five-year low on March 9 on speculation stimulus packages and lower borrowing costs will revive the global economy.

Australia’s S&P/ASX 200 Index looks “bearish” because it has advanced for three-consecutive waves, according to Elliot Wave International’s monthly Asian-Pacific Financial Forecast report released on Aug. 28. “That puts it most at risk of a deep retracement.”

China’s Shanghai Composite Index and South Korea’s Kospi Index are “breaking down,” according to the research company. The Chinese gauge was the world’s best-performing major index until it peaked at 3,478 on Aug. 4, after a five-wave rally that began in October. The weakness in the Kosdaq index signals a decline in the broader market, it added.

“When secondary indexes weaken, it often signals that the market’s speculative ‘animal spirits’ are waning,” Elliot Wave International said in its monthly Asian-Pacific Financial Forecast report. As in South Korea, a similar trend is developing in China where the Shenzhen Small and Medium Enterprises Index has fallen below the “lower channel line.”