The verdict is in… it’s been one of the worst Januarys ever for stock markets around the world. But don’t write off 2016 yet.
As we’ve written before, the so-called “January barometer” states that if markets are down in January, they’ll be down for the year – and if they’re up in January, they’ll end the year positive. In January, Asia as a whole (minus Japan) fell nearly 8%, Singapore declined almost 9%, Hong Kong fell 10%, and Shanghai declined 22%. So with markets down most places (except Indonesia and Thailand), the outlook for the rest of the year might not look promising.
But the January barometer doesn’t work that well for most markets in Asia. When January ends in the red for the Singapore market, the year ends negative only 55% of the time. For Malaysia, it’s only accurate 45% of the time and for Hong Kong the odds are slightly less than 50% – when the markets are down in January.
When the markets end January on a positive note, the January barometer is more accurate. For Singapore, a positive January resulted in the STI ending the year with a gain 71% of the time. When the month is positive, Vietnam’s stock market rivals the S&P 500’s results, with the year ending positive 89% of the time. But for the Thai market, it’s only right 64% of the time.
If you are invested in Singapore, Malaysia, the Philippines or Hong Kong, the odds – based on past performance, which of course often isn’t helpful – are about 50/50 you’ll lose money this year. Those invested in Indonesia and Thailand have the least to worry about. But, based solely on the January effect, money invested in the Vietnamese or Shanghai markets might struggle to eke out some gains.
However, January has no special powers and there is no guarantee the rest of the year will be as bad. Historical indicators like this are helpful. But in investing, usually the past has no bearing on the present.