The ‘September effect’ on the Hang Seng

The popular stock market belief that September is the worst month for investing looks to ring true this time round, especially in the case of the Hang Seng Index.

Hong Kong buildings
Source: Bloomberg

On the last day of trading in September, Hong Kong shares are setting up for a monthly drop that will beat the 7.1% dip last June.  

This would make it the worst monthly drop in over two years, since the 11.6% dip to 18,629 points recorded back in May 2012, and global markets were shaken by jitters over the Eurozone debt crisis.

The rather subdued China macrodata released today gave little reason to celebrate as well. The final HSBC China manufacturing PMI for September showed a reading of 50.2, lower than the initial reading of 50.5 and unchanged from August.

Hong Kong retail sales figures released yesterday were better than expected. August sales rose by a 3.4% from the previous year, instead of the consensus forecast of a 2% dip. That failed to lift market sentiment and we saw the Hang Seng Index fall 1.9% on Monday.

Investors were likely more spooked by how future retail sales might be hit by the escalating tensions from the Occupy Central pro-democracy protests.

With China’s National Day Holidays starting on October 1, there are concerns that protests will keep tourists away from Hong Kong. Banks, retailers and tourism-related stocks have suffered the brunt of the market sell-off so far.

September was a particularly bearish month, with only 5 positive sessions. We’re likely to see the bearish momentum over Hong Kong shares continue.

The freefall has seen the Hang Seng Index today break through a major support level of 23,000 points. While it searches for a new support level, investors should keep an eye on whether the Hang Seng will continue to test its uptrend line over the past two years. A possible floor for it to test here will be around the 22,400 level – a previous resistance-turned-support.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.