Overview
The Chinese New Year (CNY) period may create seasonal market trends, driven by factors like consumer spending, holiday-related consumption and tourism. Market participants often look to take advantage of the pre-CNY rally, capitalising on the increased demand for consumer goods, travel and luxury items.
Here are how you can capitalize on trading opportunities during the Chinese New Year season:
Does seasonality point to a pre-Chinese New Year (CNY) rally?
A look at average performance pre and post-Chinese New Year over the years seems to suggest a more supportive risk environment in the lead-up to the festive season. Since 2005, where data for the CSI 300 index is available, the index has averaged around 2.6% one week before the CNY, while only saw an average of 0.3% one week after the festival. The percent positive is higher as well, with 85% of the years seeing gains a week before the CNY versus the 40% post-CNY.
Some of the possible reasons may be a general optimism in the market during the lead-up to the festive season, as traders anticipate increased consumption, travel, and industrial activities, particularly in sectors like retail, e-commerce, and transportation. Any form of economic measures or stimulus announced by the Chinese government before CNY to uplift consumer spending may also offer an added boost to sentiments.
Immediately post-CNY, trading volumes may generally drop, with lower liquidity and less trading activity potentially resulting in a slower performance. Supply chains may take time to recover, as factories and businesses gradually resume operations, which could lead to more cautious trading behaviour.