Year of the Dragon: Hang Seng to top 20,000 points as stocks face early pain, major swings, feng shui expert predicts

Hong Kong's beaten-down stocks are more likely to generate better returns for investors in the Year of the Dragon that began on February 10, judging by market history. Eric To Chung-yin, a banker-turned-feng shui expert, predicts a successful year ahead.

Since its inception, the Hang Seng Index has had a winning year every time the Year of the Dragon has come around the Chinese zodiac's 12-year cycle, with gains ranging from 0.5 per cent in 2000 to 33.4 per cent in 1988, according to Bloomberg data. The benchmark also rallied in three of the four associated calendar years.

Investors can be "cautiously optimistic" about Hong Kong's stock market fortunes as the mythical dragon takes flight, which symbolises power and luck in Chinese culture, To said in an interview. After a US$2 trillion sell-off since January 2021, a rebound in local equities may be imminent, he added.

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"We are more likely to see a year of gains instead of another year of slump" despite the geopolitical and economic challenges, he said. "People want to see a real bottom in stock prices, before getting back into the market. I don't think we are very far from that pit."

To predicts the Hang Seng Index will climb above 20,000 by the end of December, and may even reach 25,000, if stars are aligned.

The preceding Year of the Rabbit ranked as the worst since the Hang Seng Index's inception with a 29 per cent slump. In previous Rabbit years, the benchmark sank 16 per cent in 2011, rallied 70 per cent in 1999, fell 8.8 per cent in 1987 and soared 76 per cent in 1975, according to Bloomberg data.

It may still get a little uglier before it gets better. The Hang Seng Index has slipped 7.6 per cent this calendar year. Analysts at CLSA, taking time off fundamental research, predict the stock market may struggle through the end of April. From there, investors could bank in an almost 15 per cent gain before the Year of the Snake takes over in late January next year.

"A gaze into our crystal ball tells us that the dragon has become entangled in the cottontail rabbit's elongated tail, signifying general weakness in the market in the first half of the year," the firm said in a tongue-in-cheek report on February 1. "Traversing this market on the dragon's back is anything but a smooth sailing experience."

The reason? China's post-Covid economic recovery has lost momentum over the past year, and deflation has become more entrenched as consumer and producer prices contracted. Disappointment among investors has reached a "chronic" level, according to Bank of America, with global funds reducing their allocations to the lowest net-underweight in a year.

The Rabbit's final days in 2024 were chaotic and also uplifting for stock investors, as China's state-fund intervened to support prices, regulators curbed securities lending and short-selling to overcome a loss of confidence, and the sell-off got the attention of the nation's top leader.

Notwithstanding his optimistic predictions for the Hang Seng Index, this year's dragon could cause major swings in the market.

"The dragon is the only zodiac sign that does n0t exist in real life, which means it is unpredictable," he added. "Fluctuations are inevitable, especially around the transition period. But I believe that after the rain comes the rainbow, fate always comes full circle."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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