January could be a sign of good things to come in Asia

The results for January are in…

Although stocks have taken a bit of a beating over the past few days, in January, equity markets across Asia were up strongly.

And that could be a sign of good things to come…

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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, they’ll end the year positive, and if they are down, they will end down.

This January, the MSCI Asia ex-Japan index was up a very strong 7.3 percent. Vietnam boasted the biggest climb, at more than 13 percent and Hong Kong followed at 9.8 percent. The Philippines posted the lowest return, at 1.3 percent. There was no market that fell during the month.

So with markets up across the board in the region, the January barometer suggests that it’s going to be a good year.

And luckily for investors, the January barometer is a lot more accurate when January ends on a positive note.

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For Hong Kong, a positive January has resulted in a year-end gain 76.9 percent of the time since 1990. For Shanghai, it’s been accurate 64.3 percent of the time. For Vietnam, it’s a toss up.

On the other hand, the same can’t be said for the accuracy of the January barometer for Asia when the year begins negatively.

The chart below shows how Asian markets have performed over the full year when they are down in January. For Thailand, a negative January resulted in a loss for the full year 66.7 percent of the time. But for Singapore, this was the case 37.5 percent of the time. And for the Indonesian market, it was accurate only one-third 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, particularly for Hong Kong, Thailand and the Philippines.

Of course, there’s nothing inherently special about January – and no assurance that historical precedent will hold.