Year of the Dragon: Hong Kong stock market in for a topsy-turvy ride, CLSA’s Feng Shui Index predicts

Hong Kong’s stock market investors can expect a roller-coaster ride full of turbulence and drama as symbolised by the Chinese zodiac of the dragon, according to CLSA’s tongue-in-cheek Feng Shui Index.

Market weakness will endure in the first half of the Year of the Dragon, and chances are the Hang Seng Index will climb into positive territory only in the summer or later, analysts Justin Chan and Stella Liu said in a report on Thursday. The market could possibly end the year higher, they added.

“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” they wrote. “The busy nature of the zodiac animals reflects the frequently dramatic characteristics of a dragon year.”

The Hang Seng Index has lost 9.2 per cent in January, the worst start since 2016 when the gauge tumbled 10 per cent. Weak economic data, Beijing’s piecemeal support measures, and renewed geopolitical risks have all weighed on sentiment, with foreign investors continuing to dump Chinese stocks.

The CLSA analysts said that Hong Kong stocks could fall significantly between February and March before making a recovery as a “groggy dragon stumbles out of its cave”.

“Unable to read the signposts left by the rabbit, [the dragon] will tumble down the hill, bringing a lot of dust and rocks with it,” the analysts said, referring to the ongoing Year of the Rabbit, which ends on February 9.

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How will your Chinese zodiac fare in the Year of the Dragon?

How will your Chinese zodiac fare in the Year of the Dragon?

The Hang Seng Index will soar in August to stand “clearly above the level at which it began”, and register its best month in November as the dragon seeks to accomplish its goal before the year ends, they added.

In the Year of Dragon, fire will replace earth as the guiding element for the next two decades, supporting breakthroughs in fields including technology, medicine and chemistry. Meanwhile, earth-related industries such as livestock could also continue to perform well, as fire produces earth according to the Chinese five elements philosophy.

However, the metals sector could encounter difficulties. Wood-related businesses should remain stable or even experience growth, they said.

Launched in 1992 as a Lunar New Year card, the CLSA Feng Shui Index is a lighthearted outlook for the Hong Kong market based on the interplay of “bazi” or four pillars of destiny, a Chinese astrological concept that predicts one’s future.

The guide is not a research report and investors should make decisions based on fundamental analysis, the firm said.

“Our attempt to decipher the dragon’s path is akin to peering through a pinhole once a month to gain glimpses of its elusive movements,” they said. “True to the dragon’s nature, these predictions may exhibit an inclination opposite to what we have indicated, or offer no direction at all.”