First Trading Day Effect on China Stocks 2011

Last year CSV wrote an article regarding the first trading day effect on Chin stocks. It was accurate on mainland China stock markets with reference to the first trading day performance of Hong Kong stocks, that Shanghai Composite Index dropped 14.31% for the year 2010 when Hong Kong HSI fell on the first trading day of 2010, but it was inaccurate on Hong Kong HSI which rose 5.3% in 2010.

As China stock markets including Hong Kong rose on the first trading day in 2011, according to the first trading day effect, there is a 90% chance that SSECI will rise for the year 2011. Though such effect is only 50% accurate for the Hong Kong stock market, as Hong Kong now tends to track SSECI, it is likely that HSI will end higher in 2011.

Below is the article written last year regarding the first trading day effect:

“We often speak of the January Effect on the US stock markets.  It is interesting to find how the first trading day of the Hong Kong stock market implies to the whole year performance.

For the past 20 years in Hong Kong, there was 75% accuracy on the first trading day effect.  That is, if the first trading day was up, the year end would close higher than the previous year.  As for mainland China, represented by the Shanghai stock market, the chance was only 50% for the past 10 years.

However, for the past 10 years, the implication of Hong Kong stock market’s first trading day effect on Shanghai was high.  Nine out of ten years from 2000, if the first trading day in Hong Kong was up the whole year performance of the Shanghai stock market would be up, and vice versa.

The Hong Kong and mainland China stock markets were down on the first day of 2010 by less than 0.3%, but on the second day Hong Kong and Shanghai advanced 2.09% and 1.18%, respectively.  Statistics is statistics, a 10% chance is enough to make you win or lose. To capture the ups and downs in the following 12 months successfully is more crucial than guessing the year end result correctly.”