Run with the hare

KLCI's best performing Chine zodiac

TOMORROW, we will be ushering in the Year of the Rabbit, the fourth animal zodiac sign under the 12 animal zodiacs derived from the Great Race.

Based on the Chinese calendar, this year is the year 4721 and it is a Yin year.

Just like any other year, the Year of the Rabbit too will have a significant influence not only on those who are born in the same animal zodiac but also on the other 11 Chinese zodiac animal 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.

According to the website, the year 2022 was a year of all types of extremes and indeed we had all sorts of extremes with financial markets and the economy going through a turbulent year with many ups and downs, especially the volatility of the equity market and in particular the tech sector in the United States, the meltdown of cryptocurrencies and the unprecedented rise in inflation and interest rates, which have now clouded the economic outlook for this year.

Hence, what will be the outlook for the Year of the Rabbit?

As this year is under the element of “water”, according to the same website, “Rabbit represents patient and peaceful energy, while the ‘water’ element brings intuition and inner peace. Hence, the combination of the energies will bring more harmonious and peaceful year”.

The website further adds that with the elements in place, it will be a good year for diplomacy and communications, bringing good luck and unexpected opportunities.

Will the markets hop higher?

Economy-wise, in the past, the Malaysian economy has seen respectable performances in Rabbit years.

In 2011, the last year of the Rabbit, the economy expanded by 5.3% but in 1999, the economy expanded by 6.1% in the aftermath of the Asian Financial Crisis.

The year 1987 too was a decent year as the economy expanded by 5.2%, regaining its momentum from the 1985 recession year.

Hence, the past three Rabbit years have been smooth sailing as far as the economy is concerned. However, the scenario is rather mixed for markets.

The chart summarises the three best-performing Chinese zodiacs for the past three 12-year cycles of the Lunar New Year and ranked by average performance, the Year of the Rooster was the best performer, as the FBM KLCI gained an average of 28.7%, mainly driven by the spectacular bull run of 1993, followed by the Year of the Rabbit, with an average gain of 21.4%.

This was mostly driven by one of the best rallies in the history of the stock exchange when the FBM KLCI gained 67.8% in the 1999 Year of the Rabbit – the second-best year in history over the past 36 years.

The third prize goes to the Year of the Snake, with an average gain of 17.9%, driven mainly by the spectacular 1989 market rally, which saw the FBM KLCI leapfrog 42.5%.

The local bourse has seen a mixed start to the new year so far but most global markets’ performance in the tail end of the Year of the Tiger has been positive, supported by the market’s perception that rate hikes will peak this year and a slowing global economy, with risk of recession rising, may prompt the US Federal Reserve to cut rates even towards the end of 2023.

For Malaysia, the Year of the Tiger started at 1,512 points and was last seen at 1,496 points as of Thursday’s close – one trading day before the Year of the Tiger comes to an end.

During the Chinese calendar year, the FBM KLCI raced to a high of 1,619 points by early March 2022 but fell to a low of 1,373 points by the middle of October 2022.

As of Thursday’s market close, the Year of the Tiger, as measured by the FBM KLCI, gave investors a negative return of 1.1%.

The question on everyone’s mind is how would the Year of the Rabbit be for our market. Where would the market be when we usher in the Year of the Dragon on Feb 10, 2024?

As far as the economy is concerned, Malaysia’s gross domestic product (GDP) for the fourth quarter of 2022 will likely show that the economy has slowed down considerably in the final quarter, with an estimated growth of 5.5% year-on-year (y-o-y) from the blistering pace of 14.2% y-o-y growth in the preceding quarter.

With that, the nation’s GDP will likely post growth of approximately 8.4% for 2022 – the fastest pace of annual growth in more than two decades, thanks largely to the low-base effect in the previous year.

With slower global economic growth, rising interest rates and inflationary pressure, economic growth this year will likely be less than half of last year’s growth, as the government’s expected GDP growth rate of between 4% and 5% will be at the lower end of the range.

Even the consensus agrees with this view with a median estimate of about 4%.

Index-wise, the FBM KLCI is seen to have a fair value of about 1,640 points for this year, based on a poll of 10 stockbroking firms, with a range of 1,580 points to as high as 1,700 points.

However, as mentioned in this column a few weeks ago, the year 2023 is again a challenging year due to multiple headwinds.

The global economy itself is on the verge of potentially falling into recession mainly due to the unprecedented rate hikes, drop in liquidity due to the shrinking of the central banks’ balance sheet, and the relatively elevated inflation prints.

Nevertheless, as these headwinds are seen to be addressed and once inflationary pressure is under control, it will be the markets’ turn to regain their momentum as economic recovery will begin as the central banks turn dovish.

Hence, the market has a decent upside of 10% this year, although some of the headwinds mentioned above may prolong the market from reaching its target level.

Pull a rabbit out of the hat

While we may not experience a jack-rabbit start mainly due to a relatively low market confidence level as far as the local bourse is concerned, certain events will define the Year of the Rabbit.

The re-tabling of Budget 2023 and the upcoming six state elections could spring a surprise for the market and once these two events are done and dusted, Malaysia’s political risk premium will likely be much lower.

Speaking of politics, since assuming the premiership, Datuk Seri Anwar Ibrahim has not made that many mistakes and was also quick like a bunny in coming out with some decisive moves.

Investors and market watchers too will be more than happy to see if he can pull a rabbit out of the hat and regain investors’ (especially foreign) confidence.

This is not just about putting back Malaysia in the eyes of foreigners for direct investments but also portfolio investors, as Malaysia’s capital markets are at attractive levels.

Wishing all readers and investors a Gong Xi Fa Cai – may the year bring joy, happiness, an abundance of wealth and good health.

Pankaj C. Kumar is a long-time investment analyst. The views expressed here are the writer’s own.

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markets , FBM KLCI , outlook , consensus , fairvalue


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