January effect likely around corner

Editorial | Mary Ma 30 Dec 2020

2020 has been a curse for Hong Kong, with the Hang Seng Index underperforming most competitors.

Faring only slightly better than London's FTSE 100, the HSI failed to recoup as much as its counterparts in New York, Tokyo and even Taipei, which have already climbed past where they were in January.

Yesterday the HSI was about 2,500 points below its January level. That's too bad.

The question is: as the New Year kicks in, will the local stock market benefit from the blessing of the January effect? And if the market does well during the month, will it bode well for the rest of the year?

Whether history or superstition, neither is expected to repeat itself readily.

Of all the markets, Taiwan is the only competitor that has remained incredibly unaffected by the pandemic. By contrast, Hong Kong seems to have been particularly lackluster.

If the adage is true to sell in May and go away, the rolling out of Covid vaccination programs may just be enough to turn the tide around - if, and only if, there are no further complications from stronger mutated strains.

It is too early to predict if a good January will bode well for the year. Nonetheless, it will be good to see the first month of the year opening well - and it is hopeful that will be the case for a number of reasons.

First, the pandemic has accelerated the pendulum swing from the old to the new economy, with tech stocks hitting record highs.

The beginning of vaccinations in the West - and very soon in Hong Kong - is precipitating a swing back to the old economic sectors that are now full of bargains.

The recent slump in Alibaba's share price was partly political, readily attributed to Beijing's big stick bash on the group and its founder Jack Ma Yun.

As Alibaba receded, it became clear in the tidal movement that fund managers acted to replenish their portfolios to include bargains from the old economic sectors in anticipation of a main-street rebound as the economy normalized.

They know it will be too late to reshuffle after the economy returns to normal.

Barring any unforeseen surprise, Donald Trump will step down as US president in three weeks. In his final weeks, he kept punching Beijing with sanctions that he would have reserved for the next four years if he had been reelected.

Joe Biden can afford to do little in regard to China after all the Trump bashing against Beijing. Perhaps he should thank Trump for sparing him the heat.

Biden is anticipated to be calm and restrained on Beijing to focus instead on domestic issues.

That will create a window for Hong Kong to stabilize its investment environment to ensure that businesses are no longer in a hurry to move out of the city.

The vacuum will see a de-escalation in political brinkmanship - and the January effect is probable.

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