Of snakes, dragons and fund managers

February 11, 2013

The Year of the Snake is considered one of the less auspicious in the 12-year Chinese zodiac cycle. And 2013 is the year of the Black Water Snake, which comes around once every 60 years and is seen as the least fortuitous. How China’s stock markets turn out after years of poor performance remains to be seen but the snake is providing banks and asset managers with plenty of food for thought. Many of them have been gazing into the crystal ball to see what 2013 may hold for Chinese markets.

Fidelity Worldwide investments highlights the ‘Snakes and Ladders’ that could influence Chinese equities this year. (They have a great accompanying illustration)

Fidelity’s Raymond Ma reckons  there are six ‘R’s’ that could act as ‘ladders’ to buoy Chinese equity markets this year: recovery, reverse, reform, reflation, re-rating and rally. Under snakes he names inflation, a continued depreciation of the Japanese yen, excessive corporate debt/equity issuance,  a prolonged euro zone crisis and an earlier-than-expected end to quantitative easing in the United States.

But past snake years  have been the worst of the cycle for world markets, analysts at CMC Markets point out. Their analysis shows that  the S&P 500 and Hong Kong’s Hang Seng have generally posted losses, while UK returns have been below average. The Hang Seng has fared particularly poorly (down four snake years in a row with average losses of 16.7 percent) So, will the curse hold this year, CMC ask:

Will the year of the snake bite equities in 2013?

Agnes Deng, Head of HK China Equity at Baring Asset Management, is more optimistic. Water snakes have a reputation for transformation, in the same way that China’s economy is undergoing change. Moreover, Chinese zodiac snakes are female or yin, Deng says, contrasting the Snake with the “moody, broody, male yang energy” of the Dragon last year.  (Incidentally the supposedly auspicious Year of the Dragon, 2012, provided little cheer for Chinese equities). Deng says:

If the Black Water Snake holds true to form, it is our belief that the behaviour of the Chinese equity market in 2013 should be more suited to many investors than the unpredictability generally experienced last year under the gaze of the Dragon – a creature characterised by its dramatic and often volatile nature…..Like the Black Water Snake, the Chinese economy can be flexible, dynamic and is hard-working as it looks to achieve superior growth supported by what we see as strong fundamentals in the consumer sector, underpinned by rising domestic demand and a growing middle class.

She adds:

Like the Black Water Snake’s preference for having carefully thought-out tactics, we expect our bottom-up stock selection process to be of benefit, especially in the consumer and industrial sectors.

A lot may depend on the birth year of the investor however. Stephen Jen at SLJ Macro Partners:

In the Year of the Snake, there should be great fortune for those who are intuitive and cunning – the two traits of a snake.

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