“RAT-ional” expectations

  • Economy
  • Saturday, 25 Jan 2020

GONG Xi Fa Cai! Today is the first day of the Lunar New Year as we usher in the Year of the Rat. How did the Lunar New Year come to be associated with the 12 zodiac animals?

According to legend, the Jade Emperor decided that the Chinese Lunar Calendar would be based on animal signs and the first 12 to arrive at the finishing line would be selected.

So, The Great Race was held to determine which zodiac animal should be ranked first for eternity among the 12 zodiac animals. The rat, after playing some tricks especially with the ox, was the first to arrive.

Hence, on this day, being the first day of the Chinese New Year, we are welcoming the Year of the Rat again and with it a new 12-zodiac animal cycle. The new year - a “yang” year - is the 4,718th year in the Chinese calendar.

Just like the Year of the Pig that has just passed, the Year of the Rat too will have significant influence on not only the people born in the same animal zodiac year, but also on the other 11 Chinese zodiac animals. For those who are followers of the Chinese zodiac signs, the fortunes or luck from the Year of the Rat can influence wealth, health, career and even marriage prospects.

At the corporate level, it can influence business prospects, typically by the element that is represented in a given year. There are five elements of nature - Fire, Water, Earth, Wood and Metal - associated with each year, with this year being the Year of the Metal Rat.

According to thechinesezodiac.org, the Year of the Metal Rat is going to be a strong, prosperous and lucky year for almost all and is a great year for beginnings and evolving. As the metal element creates water, productivity and activity for the metal industries are suggested. In terms of beneficiaries, this includes the production of cars and machinery, IT, high-tech industries, cosmetics and health.

As the Year of the Rat is also the start of a new 12-year zodiac cycle, it is believed that this year is good to start something new, especially things that one has been thinking of doing for a long time but has been hesitant to do. This could be in the form of a new career, a new job, a new investment or even marriage.

While this column is not a feng shui or Astrology column, the feedback that one gets from various experts in the field of Chinese metaphysics can perhaps influence how we prepare ourselves for the year ahead.

As usual, for the market as measured by FBM KLCI returns, Table 1 summarizes the past three 12-year cycles of the Lunar New Year. As can be seen, the Year of the Tiger and Monkey have been the best years for the FBM KLCI, with positive annual returns every time in the past 36 years. The Dragon, Sheep, Rooster and Pig Years, meanwhile, provided positive annual returns at least twice out of three times.

The Rat, Ox, Rabbit, Horse and Dog Years have not been very good years for the market, however, as the FBM KLCI only rose in one of the three cycles over the past 36 years. Ranked by average performance, the Year of the Rooster was the best performer, as the index gained on average 28.7%, mainly driven by the spectacular bull run of 1993, while the Year of the Rat has not been a good year for the market as it has averaged negative returns on the past three occasions.

The worst outing was during the 2008/2009 Global Financial Crisis, as the FBM KLCI tanked 38.4% during the last Year of the Rat.

Although the Year of the Pig, which ended yesterday, provided a negative return of 6.5% (up till Thursday’s close) as far as the FBM KLCI is concerned, we all know that most other key indices on Bursa Malaysia performed remarkably well, while most other Asian and global benchmark indices were firmer.

In the same column last year, the prediction was that the Year of the Pig would be a great year for the market, as historically, it has given investors on average returns of 22.4%. But alas, that did not happen. However, we did see strong gains among several sub-indices of the Bursa Malaysia index series, notably the Mid Cap, Ace, Technology and Energy indices, which rose between 23.8% and 49.7%.

Now, the million-ringgit question for 2020 is, where will the market be when we are ready to usher in the Year of the Ox on Feb 12 next year?

The unexpected 25-basis-point rate cut delivered this week was indeed, as described in the Monetary Policy Statement, a pre-emptive measure. Malaysia’s fourth-quarter gross domestic product data is still being finalised, while the growth trajectory for this year remains firm, especially with the finalisation of the US-China Phase One trade deal. Geopolitical tensions arising from the US-Iran conflict early this month, which we thought would escalate, have for now been defused.

While we are concerned about the impact of the coronavirus, a cousin of the SARS virus, it is hoped that it would not be a full-blown pandemic. The lower benchmark rate could provide further stimulus to domestic consumption, while the cheaper cost of funds is expected to spur purchase of big-ticket items and encourage more investments.

This is also positive for the REITs sector, companies with significant floating rate borrowings as well as consumer names. For companies that are in a net cash position, the lower benchmark rate reduces investment income while for the banking sector, the lower rate adds pressure to net interest margins, but hopefully, this is offset by higher lending activities.

Overall, it may be a year for us to be “rat-ional” in our expectations, as they are indeed many challenges ahead, not only for Malaysia but also the world. It also goes to show that while we are always in a rat race to achieve our objectives, we are not in total control of our destiny as we are always up against the unforeseen – that’s just how it is.

Hence, it is important to be mindful as sometimes, we can be caught up in market euphoria, especially if there are sudden changes to circumstances that could “rat-tle” the markets.

May the new year bring joy, happiness, an abundance of wealth and good health.

The views expressed here are the writer’s own.

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