Don’t worry, yet – a bad January doesn’t mean a bad 2016 for markets

This January has been unkind to markets. Singapore’s STI is down 6% and other markets in the region are struggling too. Shanghai is down 15%, Hong Kong is off 10%, and the Philippines has dropped 8% in 2016 so far.

ASEAN stock markets YTD performance (as of 14 Jan 2016)

For some markets, this means bad things for the rest of the year. A theory called the “January barometer” says that if a market falls for the full month of January, it will end down for the entire year. But if January is positive, the markets will end the year in the black.

For U.S. markets, the January barometer has been a very accurate way to predict how the S&P 500 will end the year. It’s been correct for 57 of the past 65 years. That’s a lot better than just about any so-called market expert.

Of course, the month of January has no prophetic abilities or other special powers. And there shouldn’t be any relationship between what happens in January and what happens from February on. But markets have moved in a way to prove the January barometer theory.

However, for local stock markets, the January barometer isn’t quite as accurate – but it’s still not bad. Looking back at markets from 1991 to the end of 2015, we tracked how markets ended the year, when January was up or down. For Singapore, a positive January meant the local STI finished the year positive 71% of the time. So over the past 25 years, the STI has finished January in the black 14 times – and of those 14 times, it’s finished the year in the positive column 10 times.

That’s a pretty good hit rate. But it was less than for the Philippines (76%) and Vietnam (89%).

Positive performance after a positive January

The good news – since this January has been a bad month – is that the barometer doesn’t work as well when stocks fall in the first month of the year. For the STI, a negative January translated into a negative year 55% of the time. Of the 11 times over the past 25 years that the index finished in the red for January, it wound up showing a decline for the year a total of six times. That compares to 67% for Shanghai, and 64% for Thailand.

Negative performance after a negative January

Of course, January is far from over. Things could turn around – or get worse. And what’s happened in the past is no guarantee it will happen again in the future. But this is perhaps a glimmer of hope we can look to as Singapore’s, and the region’s, markets remain volatile.


This article is contributed by Kim Iskyan, the founder of Truewealth Publishing (www.truewealthpublishing.asia) and the editor of the Asian Investment Daily, which features daily actionable insight about Asian investment, finance and economics.

If you are an independent or freelance writer/blogger willing to provide original content that is related to finance and investing in Singapore,  feel free to contact me and I’ll contact you for a further discussion.

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