Why the Year of the Rooster could give markets something to crow about

A new Chinese Lunar New Year, or Spring Festival, should have no impact on stock markets – whether here in Asia or in the U.S. Stock markets don’t know the month – or the zodiac year, of course. But it’s a fact that some years of the Chinese zodiac are better than others for stock markets. And the Year of the Rooster – which just started last week – is one of them.

Each year on the Chinese lunar calendar is named after one of 12 animals in the Chinese zodiac cycle. The year of the monkey has just come to an end, and before that was the year of the sheep. Other years are named after dragons, rabbits, rats and snakes to name just a few.

This year is the year of the rooster. And as it happens, the rooster has in the past meant good things, for both Asian and U.S. stock markets.

 

Year of the Rooster for Asia

The MSCI Asia ex Japan Index reflects the performance of major Asian markets, excluding Japan’s. However, the index has only existed since 1988, so it has yet to complete three full 12-year cycles of the Chinese zodiac. Thus the sample size used to calculate the figures below is quite small.

Also, Asian markets had a great year in 1993, with the MSCI Asia ex Japan Index returning 75 percent. That was an early year of the “discovery” of emerging Asian markets. So that does skew the results.

With this in mind, the graph below shows that the year of the rooster has been the best year for Asian markets, by far.

Source: Truewealth Publishing Asia

Past years of the rooster have averaged returns of 52 percent. That’s 19 percentage points higher than the next closest year, the year of the rabbit. And it’s well above the index’s average return of 13 percent a year. (All returns are total returns, and include dividends.)

But the MSCI Asia ex Japan Index’s performance during the year of the rooster only has a sample size of two. So take these results with a giant helping of salt.

 

Year of the Rooster for the U.S.

Even though Lunar New Year is one of the world’s most popular holidays, it’s still more of a cultural curiosity in the U.S. It takes a back seat to Christmas, Halloween and other western holidays.

But as shown below, U.S. markets, as measured by the S&P 500, also do very well during the Chinese year of the rooster. The S&P 500 has averaged a total return of 14 percent. That strong performance is behind only the year of the tiger, and the year of the pig, and is tied with the year of the rabbit.

Source: Truewealth Publishing Asia

These results are a little more robust than those for the MSCI Asia ex Japan Index, as the S&P 500 has existed longer. We used performance figures for the S&P 500 going back to 1928, to the above reflects nearly eight full cycles of the 12-year Chinese zodiac. And the pattern shows that the year of the rooster has historically been very good for U.S. markets.

As shown above, both Asian and U.S. markets should be avoided during the year of the snake – Asian markets have on average been flat, and the S&P 500 has only returned 1 percent on average. The next year of the snake will be 2025, so there’s no need to worry about it for a while.

There’s no scientific basis for the predictive powers of the Chinese zodiac. Just like there’s no basis for the January barometer, or the “sell in May and go away” trading rule (but they seem to work). And of course the past has no bearing on the present. But historical indicators like this can give investors some guidance about what markets have done before.

Visit Truewealth Publishing Asia's website at truewealthpublishing.asia.

(By Kim Iskyan)

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