History is no prologue – sometimes. It’s different for stock markets, though.
Earlier this year, we wrote about the “January barometer.” This suggests that stock market performance in January foreshadows market performance for the full year. So if markets are up in January, there’s a good chance they will end the year positive. But if January is negative, the odds are that markets will end the year negative.
We analysed whether stock market performance during the first half of the year (rather than for just January) presaged full-year performance over the past 25 years (and 16 for Singapore). For the most part, it does.
As shown below, a positive first-half performance more often than not led to a positive second-half market performance, for all of the markets we looked at. For Singapore, the Philippines and Hong Kong, a positive first half was, on average, followed by double-digit returns during the second half of the year.
Similarly, a negative return during the first half of the year was most of the time followed by a negative second-half return. In 4 of the 7 markets we studied, negative first halves were followed by negative second halves a majority of the time. (In two markets, a downbeat first half was followed by a negative second half exactly half of the time.) The MSCI Asia ex Japan index had a less than average chance of having a bad second half of the year.
So, what does this portend for Asian markets for the rest of the year? The graph below shows how they’ve performed so far this year. The Philippines market is up strong, while Hong Kong is down 5 percent.
Based on what’s happened in the past, the second half of the year looks promising for the Philippines and the S&P 500. That’s because over the past 25 years these markets posted a positive return during the second half of the year following a positive first half, the majority of the time.
But Singapore and Malaysia’s markets might experience more pain for the rest of the year. After a negative first half of the year, Singapore has ended the year negative 75 percent of the time, since 2000. Malaysia has had the same experience 57 percent of the time. And so has the MSCI World Index – 57 percent of the time a negative first half of the year is followed by a negative second half.
Of course, the past has no bearing on the present. And five of the markets we looked at posted returns that were within two percentage points of flat – so they’re not very strongly positive or negative. But it does help give some perspective on what could happen for the rest of the year. So, based on their past performance, the Philippines and the S&P 500 are most likely to post a positive second half return.