History is no prologue, but for stock markets, past performance indeed often gives us clues about the future.
We’ve written before about the “January barometer”, the notion 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’ll end the year positively, and vice versa.
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We extended this analysis to see whether stock market performance during the first half of the year (rather than for only January) presaged full-year performance over the past 25 years. 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 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.
For 4 of the 5 indices we studied, negative first halves were followed by negative second halves over half of the time. The MSCI Asia ex Japan index had a less than even chance of having a bad second half of the year.
So, what does this portend for Asian markets for the rest of 2017?
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The graph below shows how they’ve performed so far this year. MSCI Asia ex Japan has seen the strongest growth… up 23 percent. And Singapore (20 percent) and Hong Kong (19 percent) are not far behind.
Based on what’s happened in the past, the second half of the year looks promising.
That’s because over the past 25 years, a majority of the time the five markets we looked at above posted a positive return during the second half of the year following a positive first half.
Of course, the past has no bearing on the present.
But it does help give some perspective on what could happen for the rest of the year. So, based on their past performance, all five markets look likely to post a positive second half return.