Will the bulls come charging in the Year of the Ox?


XIN Nián Kuài Lè! Happy New Year! Today we usher in the Year of the Ox, the second zodiac animal sign under the twelve animal zodiacs derived from the Great Race. Based on the Chinese calendar, this year is the year 4719 and it is a Yin year.

Just like the Year of the Rat, the Year of the Ox too will have significant influence on not only for people who are born in the same animal zodiac year, but also the other eleven Chinese zodiac signs. In addition, there are five elements of the Chinese zodiac derived from the Five Elements Theory and they are Fire, Water, Earth, Wood and Metal and this year’s element, similar to last year, is again Metal.

According to thechinesezodiac.org, “the Ox is very hardworking and methodical”. Hence, according to the website, “2021 is going to be a year when work will get rewarded, and those zodiac signs who are lucky in terms of money this year will be the ones that will make a considerable effort”.

It further added that “the Yin energy, specific to the Chinese zodiac sign of Ox, will be quite poignant. This is going to be a year when we will fully feel the weight of our responsibilities, a year when it is necessary to double our efforts to accomplish anything at all”.

While this 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 and as measured by the KLCI returns, Table 1 summarises the past three 12-year cycles of the Lunar New Year and as can be seen, the year of the Tiger and Monkey has been the best years for the KLCI with positive annual returns every time in the past 36 years while the Dragon, Snake, Sheep, Rooster, Pig and Rat provided positive annual returns at least twice out of three times.

The Ox, Rabbit, Horse and Dog are not so good years for the market as the KLCI only rose in one out of the three occasions over the past 36 years.

Ranked by average performance, the Year of the Rooster was the best performer, as the KLCI gained on average 28.7%, mainly driven by spectacular bull run of 1993, while the Year of the Ox has not been a good year for market as it experienced significant volatility over the past three occasions in the last 36 years.

The Year of the Ox of 1985 and 1997 was pre-cursor to economic turmoil which saw the benchmark KLCI falling 31.8% and 54.1% respectively.

In contrast, the last Year of the Ox, the year 2009, was a year of recovery from Global Financial Crisis, which saw the benchmark index rising as much as 43.6%. Hence, based on past three Oxen years, the market is in for wild ride.

Although the Year of the Rat provided a small positive return of 1.6%, we all know that most other key indices on Bursa Malaysia performed remarkably well, especially the technology and healthcare Indices.

Most other Asian and global benchmark indices too were strongly firmer in the Year of the Rat as markets are close to record high levels. The past year was indeed historical by any standards due to the volatility that we had experience on the back of global pandemic.

The KLCI, which started the Year of the Rat at 1,574 pts, fell 22.5% to a low of about 1,220 pts by March 19 last year before rebounding strongly. The index reach a high of 1,685 pts by December 19 last year, a gain of 38.1% from the low of the year and higher by 7% since the start of the Year of the Rat.

Hence, the Year of the Rat was indeed as volatile as we had seen in past rat years but the annual year-on-year change was just modest, closing the year just under 1,600 pts.

Now, what about the Year of the Ox, 2021? Where would the market be when we are ready to usher in the Yehar of the Tiger on February 1 next year? Malaysia’s Q4 GDP showed that the economy remains in contraction in the final quarter, and with that, the nation’s GDP fell by 5.6% for the year, the worst since the 1998 Asian Financial Crisis when the economy contracted by 7.4%.

While Budget 2021 had lofty targets and the government has stepped up in terms of additional support for the economy last month, more needs to be done to ensure the economy is able to chalked up the expected 6.5-7.5% GDP growth for this year.

The government has the policy tools, both monetary and fiscal space, to provide the required support, especially during this tough Movement Control Order (MCO) 2.0 period.

Otherwise, judging by the dismal 4Q GDP performance and the economy which was somewhat derailed by MCO 2.0, the target set in the Budget 2021 will be hard to achieve and we may be in for a surprise with growth that may even fall short of 5%.

Index wise, the KLCI is seen to have a fair value of about 1,750 pts for this year but this may be challenging as we move deeper into the year as it is based on the assumption of a very high earnings growth momentum of in excess of 40% due to the low base effect.

With the vaccination programme well underway by the end of the month, it is likely that by the time we celebrate the next Lunar New Year, we may have achieved the much talked about herd immunity.

Globally, we are already seeing the trend of declining number of cases, as vaccination rollout is seen as helping the curb the spread. From a peak of more than 845,000 last month, the global daily cases have now dropped to about 438,000 as at February 10. On a 7-day moving average basis, the numbers, which peaked at 742,000 plus a month ago has now dropped 43% to about 423,000.

With global economic activity seen benefiting the nations that undergoing vaccination program, it is a matter of time we are able to enjoy the same. The Year of the Ox may likely be a turning point for economic recovery but whether the growth expectations can be met or otherwise remains to be seen.

Overall, just like the ox, we need to be diligent, hardworking, disciplined and determined to achieve our goals.

Dare we call the Year of the Ox as a bull year for the market? The signs are already there as we have seen the run-up among non-index linked stocks, especially thematic plays and rotational interest among penny stocks, while other asset classes too are enjoying spectacular rallies, especially among commodities and of course, the cryptocurrency space.

Wishing all readers and investors a Gong Xi Fa Cai – may the year bring joy, happiness, abundance of wealth and good health.Pankaj C. Kumar is a long-time investment analyst. Views expressed here are his own.

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