By Ben Levisohn
It’s a new year, so get ready to feel the “January Effect”–even in emerging Asia.
That’s the conclusion–for the most part–of HSBC strategists Herald van der Linde and Devandra Joshi, who released a note January Effect in Asian markets today. Definitions differ so let’s be clear: For HSBC’s strategists, the January Effect means that stocks rally during the first week of January every year, as investors take profits before year end, then reinvest the cash as the new year beings.
After looking at performance for the one week, one month and 12 months before and after Jan. 1, van der Linde and Joshi found that, on average, all Asian markets go up during the first week of trading, head lower for the rest of the month, and then rallied for the rest of the year. The best average performance was found in South Korea, China and Taiwan, with the weakest in Malaysia and the Philippines.
They also note that while developed-market small caps tend to benefit from the January Effect more than large caps, that’s not the case in Asia. In fact, small caps have underperformed large caps during the first week of January for nearly all emerging markets.
That means investors should look to exchange-traded funds like the iShares MSCI All Country Asia ex Japan Index ETF (AAXJ), the iShares MSCI South Korea ETF (EWY), and the iShares FTSE China 25 ETF (FXI) to get a pop this weak…and stay away from the small caps.