Do seasonal patterns exist in HK equity market?

May 03, 2019 15:57
Market statistics will show that the Hang Seng Index usually outperforms in July. Photo: Bloomberg

Around this time of the year, financial newspapers in the West usually carry headlines that advise investors to “sell in May and go away”. In Hong Kong, there is a similar popular belief that the stock market often turns weak in May, worse in June and then recovers in July.

Is there really such a cyclical pattern?

In fact, the assumption may not hold true for the Hong Kong market.

Backtesting market statistics since 1990 and 2000 will show that shorting the Hang Seng Index between May and June would have generated a compound annual growth rate of -1.26 percent and a compound annual growth rate of 0.29 percent respectively. If we take dividends into account, the CAGR would be both negative.

Meanwhile, the notion that stocks recover in July appears to have some basis.

The Hang Seng Index usually outperforms in July. Between 1990 and last year, 65 percent of the time, buying the index in July would have yielded a positive return.

The full article appeared in the Hong Kong Economic Journal on May 2

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal chief economist and strategist