The results for January are in…
Although stocks have taken a bit of a beating over the last few months, equity markets across Asia were up strongly in the first month of the year.
And that could be a sign of good things to come…
The January barometer
The so-called “January barometer” states that markets tend to follow the trend set in the first month of the year – if they’re up in January, they’ll end the year positive, and if markets are down in January, they will wind up falling for the full year.
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Among the main Southeast Asian stock markets this January, Indonesia posted the best results, with a 10 percent return, followed by Thailand with 9.4 percent and Hong Kong with 7.9 percent. All markets in ASEAN (the Association of Southeast Asian Nations) had positive returns for the month, with the MSCI Asia ex Japan index up a big 7.3 percent. The S&P 500 was up 8 percent.
So with markets up across the board in the region, the January barometer suggests that it’s going to be a good year.
And fortunately for investors, the January barometer is a lot more accurate when January ends on a positive note.
For the S&P 500, a positive January has led to gains for the full year 76.5 percent of the time since 1990. For Shanghai, a good January as been an accurate indicator just over two-thirds of the time. For Malaysia and Singapore, it’s been accurate around 61 percent.
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The same can’t be said for the accuracy of the January barometer when the first month of the year is down.
The chart below shows how Asian markets have performed over the full year after markets fall in January. For Thailand, a negative January resulted in a loss for the full year 50 percent of the time. But for Singapore, this was the case just 27.3 percent of the time. And for the Indonesian market, it was accurate only less than one-third of the time. For the U.S., a negative January was an accurate barometer only one-quarter of the time.
So based on past performance – which of course is no assurance of anything – a good January bodes well for markets in the MSCI Asia ex-Japan index, as well as the S&P 500.
Publisher, Stansberry Pacific Research