Wild ride for Hang Seng Index in the Year of the Horse
What does the Year of the Wood Horse hold for the Hang Seng Index? It's going to be a wild ride with plenty of upside, according to CLSA's annual Fung Shui Index. This is because the wood horse should be great for markets because it's full of fire, which "fans investor sentiment" and, give or take a few bumpy periods, will power the HSI to 28,105 points over the next 12 months, which is a gain of 21 per cent over yesterday's close.
CLSA, as usual, is at pains to stress the index is strictly tongue-in-cheek and not to be taken seriously. Nevertheless, it remains one of its most eagerly anticipated research reports. Lest anyone gets too carried away, the brokerage has a more subdued forecast based on less exotic fundamentals for its house view, which sees the HSI rising 15 per cent over the year.
Previous horse years provide an uncertain guide to the future. In 1954, before the HSI began in 1969, the Dow Jones Industrial Average rose 40 per cent, and in 1978 the HSI was up 35 per cent, and gained 15 per cent in 1990. But 1966 saw a decline of 11 per cent in the Dow, and 2002 witnessed a fall of 13 per cent.
For 2014, the course of the horse shows a sharp rise in February and March but is flat in April. This is followed by a sharp upward gallop in the second quarter and then descending sharply in August and September. Then it's up in October, down in November, flat in December, and ends the year with an upward flourish in January next year.
The "Sector-selector Element detector" suggests the best performances will come from businesses associated with wood such as retail and plantations, while the fire element favours sectors such as the internet, telecommunications and some oil and gas and power suppliers. As for individual signs, the horse apparently favours tigers, sheep, (goats) and dogs, while rats, cows and rabbits will have a more challenging ride.
Every year the Fung Shui guide considers the fate of personalities and celebrities. Last year, Leung Chun-ying was forecast to have a good year, which seems to have been wide of the mark. But it was spot-on with former telecommunications tycoon Ricky Wong Wai-kay, who it forecast would face "possible setbacks". This year, CLSA says Alibaba founder Jack Ma Yun faces "a sea of troubles".
As for advice on balancing a portfolio, we rather liked last year's observation that using fung shui to balance a portfolio is like trying to nail custard to the wall.
One or the other or both
Chinese Premier Li Keqiang is a powerful figure as the head of a rapidly growing economic powerhouse. But one thing he will surely find difficult to achieve this year is to fulfil the pledge he made at Davos yesterday that China would continue to both deepen reforms and keep policy consistent to ensure stable growth. We believe you can have one or the other, but not both. The "deeper" reforms should result in turning off the money spigot for all and sundry, and allocating credit on soundly based risk principles. That said, China has achieved extraordinary feats in the past, and we are as ever prepared to eat humble pie should we be proved wrong in a year's time.
Britain's efforts to crack down on white-collar crime have improved significantly since the global financial crisis. In two recent reports in Financial News the value of fraud committed in the country's financial services sector rose 12 per cent to £532 million (HK$6.8 billion) last year from 2012, while the number of reported offences grew from 122 to 132, say professional services firm BDO.
Lawyers say it was more difficult to detect crime while markets were more buoyant. They say it's largely because, as the old saying goes, "it's only when the tide goes out that you see who isn't wearing a swimming costume". But others say the Financial Conduct Authority has been more aggressive in dealing with white-collar crime than the Financial Services Authority. The value of fines levied by the FCA and its predecessor last year was £474 million, against £312 million in 2012. In 2008, prior to the series of probes after the crisis, the FSA levied just £23 million in fines.
Maybe the FCA was sick of being shamed by the frequency with which US regulators were alerting British authorities to white-collar fraud and malfeasance in their own backyard.
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