It’s Chinese New Year this weekend, and as the Year of Dragon gives way to the Year of the Snake, superstitious investment managers are no doubt harbouring feelings of trepidation. After all, according to CMC Markets, Snake years have historically been the worst performing in investment market history.
So should investors really take fright and flee from the stock market? “Not at all,” says Colin Cieszynski, Market Analyst CMC Markets Canada, “even if you really are making your investment decisions based on the Chinese lunar calendar, the reality is that Snake years have been mixed, with a pattern of positive followed by negative returns. And if that pattern continues, we are set for a positive year in 2013.”
Cieszynski said that the end of the Year of the Dragon has seen stock markets improve significantly. “Indices in the US and the UK are at their highest levels since 2007, and with improving economic data out of the US and China, investor appetite for riskier assets, like equities, is starting to come back,” he said.
But with the last Snake year, from February 2001 to March 2002, the worst Snake year ever for all markets, except Australia, can the curse of the Snake be avoided this year?
“We certainly think so,” says Cieszynski. “Part of the reason for the dire results in the last Snake year was the market sell-off post 9/11, so we shouldn’t read too much into it.”
“And the positive economic signs we are starting to see now have also produced a move by investors from defensive plays into equities, and this seems likely to continue.”
Cieszynski explained that the biggest risk facing stock markets at the moment is also one of the reasons stock markets have been rallying. He said that QE3 in the US has been adding money at a rapid rate into the financial system in the US, and based on the experience of QE1 and QE2, it is likely that this hot fast money is artificially inflating stock and commodity prices.
“And we all know that what goes up must come down. Once QE1 and QE2 were completed, we saw a 10% correction in stock markets around the world.”
Cieszynski concluded by saying that QE3 was a little bit different from QE1 and QE2 in that no end date has as yet been specified by the US Federal Reserve. “So depending on when the Fed decides to turn off the tap, investors may well find themselves well and truly bitten by the Snake this year, or even trampled by the Horse in 2014,” he said.