Date
29 May 2017
The strategy of selling in May works, although the total return is lower than in the buy-and-hold approach. Photo: Bloomberg
The strategy of selling in May works, although the total return is lower than in the buy-and-hold approach. Photo: Bloomberg

Does ‘sell in May’ strategy work in Hong Kong market?

As May is approaching, we are reminded of the old trading adage: “Sell in May and go away.”

Is there any substance to this theory? Does it work if applied to Hong Kong equities? Let’s find out by using historical data.

Basically, the adage refers to the strategy of buying between late October and early November; then you hold the shares for about six months and sell them in May, after which you wait until October before getting back to the market.

Now let’s see how this strategy has worked in the Hong Kong market.

Let’s assume we invested HK$300 in 1994, dividing the money equally into three separate portfolios.

The first one used the buy and hold strategy, the second one bought stocks between November and April, and held cash for rest of the year, while the third bought stocks between May and October, and held cash for rest of the year.

Over the past 23 years, portfolio one would have grown to HK$268, portfolio two to HK$212 and portfolio three  to HK$126.

Given the fact that October is usually a good month (74 percent of the time over past 40 years, the Hang Seng Index advanced during October), if we slightly adjusted the strategy for the second portfolio and bought stocks between October and April, its return would have further improved.

The results show that the strategy of selling in May works, although the total return is lower than in the buy-and-hold strategy.

This is partly to due to the fact that the buy-and-hold portfolio enjoys full-year dividend income.

This article appeared in the Hong Kong Economic Journal on April 27

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RT/CG 

Hong Kong Economic Journal chief economist and strategist

EJI Weekly Newsletter

Please click here to unsubscribe