Tuesday 9 March 2010

The brave may well ride the metal tiger

After the ups and downs of the stock markets and the economic woes of 2009, “volatile” is a word most investors would rather not hear in predictions about the Year of the Tiger.

3 comments:

Guanyu said...

The brave may well ride the metal tiger

A volatile but better year ahead

Hazel Parry
21 February 2010

After the ups and downs of the stock markets and the economic woes of 2009, “volatile” is a word most investors would rather not hear in predictions about the Year of the Tiger.

But volatile it will be, if we are to believe economists and their forecasts for the next 12 months. For, the Year of the Tiger is not usually one that passes quietly, with conflict and disaster being more the norm and playing their part on the shifts and turns in the global economy.

According to predictions by astrologers and fung shui masters, the stock market will dip and swing its way through the year as the influences of the Tiger and the disharmonious pairing of this year’s dominating elements of wood and fire make it a year when fortune favours only the brave.

However, investors may be able to seek solace in gold with the price forecast to stand firm, as would be expected if those predictions of international conflict become a reality.

Generally, if we are to take “tigernomics” seriously, the year will be better than the Ox year of 2009, bringing increased optimism, which in turn will have a positive effect on the stock market and bring a stronger second half to the year and also better news for the banking sector.

The Tiger is the third of the 12 animals in the Chinese zodiac. In addition, there are five basic influencing elements - metal, water, wood, fire and earth - which alternate making the Chinese zodiac a cycle of 60 years. There is also the influence of yin, with its female characteristics, and the stronger male yang.

This year the metal Tiger takes the centre stage. The Tiger is considered a wood sign which makes 2010 a metal wood year. It is also a yang year and therefore carries with it the more aggressive influence of the male.

However, as metal is considered a destroyer of wood - just think of the axe chopping down a tree - this is not a harmonious pairing, according to fung shui master and Chinese astrologer Raymond Lo, and hence the predictions of conflict.

“If you look back in history, many wars actually started in a period of metal wood. The first world war, the second world war, even the Napoleonic Wars, and fierce battles like the Charge of the Light Brigade, all took place at a time when metal and wood elements dominated,” Lo said.

Tiger years have also been marked by both man-made and natural disasters. The last metal Tiger year in 1950 saw the Dow Jones index gain significantly, the Soviet Union claimed to have made the first atomic bomb, the Korean War started and the Diners Club card - the first modern credit card - was launched.

Tiger years since have witnessed the launch of the first communications satellite and the Taiwan stock exchange (1962); Richard Nixon’s resignation and the bombing of the House of Parliament in Britain (1974); the ousting of Ferdinand Marcos in the Philippines and the Chernobyl nuclear disaster (1986); and the start of the Russian financial crisis and massive flooding along the Yangtze that killed 3,000 (1998).

For the world of finance, this potential for conflict and disaster hints at a turbulent and risky year ahead.

This is also the view of the financial experts behind the CLSA Feng Shui Index - produced annually by the brokerage and investment firm.

“Tigers can be volatile at the best of times, and this year’s yang influence coming on top the inherent conflict between the ruling metal and wood elements means we are in for a mighty interesting 12 months,” says the CLSA Feng Shui Index. “Tiger years are not for the timid. However, for those with the courage of their convictions, there’s plenty of money to be made for fortune’s twists and turns.”

Guanyu said...

So what does all this mean to the man on the street and his investments? According to Lo, despite the potential for conflict, the year ahead has some redeeming factors and will certainly be better than 2009, one being the fact that the element wood is considered to be the mother of fire - you need wood to make a fire - and fire not only symbolises optimism but is also the element that drives the stock market.

“In general it will be an active year,” Lo said. “But the economy will be doing fine especially in the summer. Tiger is wood, wood generates fire and fire in the five elements symbolises optimism, so people will be more optimistic and willing to invest.

“The first two months in the spring are also influenced by wood and we will see increased activity in the stock market but summertime will be even better because we have fire.”

Fire not only brings optimism but is also a positive influence on any “metal” industry, says Lo, because it helps forge metal into useful tools. Which is good news for banking, which is considered a metal industry.

According to fung shui, everything in life is influenced by or belongs to one of the five elements, even professions and industries. Banking is said be a metal industry and finance a fire industry. While fire generates optimism, water brings fear.

“The banking and financial tsunami that started in 2008 was triggered by the absence of fire elements and the dominating water element that generated fear,” Lo said. “Banking is metal and it needs fire to melt it into useful tools while the stock market and the financial industry are more related to fire which generates optimism.”

CLSA predicts a rise in the Hang Seng Index in the first two months of the Tiger year, followed by a dip until June, then a rise through the summer, with June and July being especially good months. It forecasts a slight dip in late summer, followed by five months of gains, ending the year on a high note. However, the CLSA report also warns of day-by-day and week-by-week fluctuations, which will make playing the market a game for those who can keep their cool.

For the property market, the CLSA report foresees a year of consolidation, with prices rising in the early part of the year followed by a weakness towards the end. Not a bursting of the bubble but rather a slow deflation.

For investors eyeing commodities, the CLSA report and Lo predict a good year for those governed by the metal element - gold, silver, zinc and aluminium. Metal industries - banking being one of them - will also flourish, as will fire and earth industries such as technology, power, property and telecommunications.

However, the two disagree over predictions on wood and water industries. The CLSA index predicts a bumpy year for water industries such as shipping, airlines, logistics and transport and a good year for wood such as clothing, paper and pharmaceuticals. Lo, on the other hand, predicts water industries will make progress this year, while wood industries will struggle to make money.

According to Francis Cheung Yiu-cheong, CLSA’s head of China/Hong Kong strategy, this is one reason why the serious investor should take fung shui predictions with a pinch of salt, pointing out that too many differing forecasts can lead to confusion and advising it is better to stick to what you know. “I am surprised how many people take the predictions seriously, although I personally don’t invest that way. I suppose everybody likes to try to take a peek at the future and investing is not a 100 per cent science,” he said.

However, Cheung admits some of this own thoughts about the coming year have similarities with those of the fung shui masters and like them, he foresees a better second half of the year for the stock market.

Guanyu said...

“From my point of view I see a weak first half and a very strong second half,” he said. “Of course the (CLSA) report has much more specific time frames predicting March to April through July as a wobbly period for the market. The question is when will it bottom out. They (the fung shui masters) see it not bottoming out until at least July and August. In that broad respect, it is pretty consistent with what I am thinking.”

Cheung says that should conflicts and disasters materialise, gold will thrive. “I’m not a big fan of gold but what drives the gold prediction in the fung shui index is that a Tiger year often brings trouble, things like disease outbreaks and potential military conflicts. If there is a war somewhere in the world, gold will do well,” he said.

“In general, commodities should be fine this year. I do believe we are riding on good global growth this year. I think property is also a reasonable investment, especially in the mass market and in Hong Kong, you get a pretty good yield.

“In terms of stock ideas, I’d generally go for something like the Chinese banks. I don’t think they are the best performing sector but you see some good long-term play and good dividend yields and visible growth, and they are not particularly expensive.”

Cheung points out that the CLSA report was tongue-in-cheek and produced for general interest. He adds: “My advice to any potential investor this Year of the Tiger would be to invest in what you know and always do your homework.”