Feng Shui and 'Dragon Babies' -- Traditions and China Stocks

Gene Linn |

Feng ShuiForget about the World Bank’s gloomy warning of a serious economic downturn this year – the real proof that we’re headed toward a bad year comes from Feng Shui.

The ancient Chinese system of beliefs holds that of the five elements, 2012 is the year of water (fear) and Earth (meditation) and the absence of fire (joy). “…So this could be a year that the economic activities and stock market will further slow down,” according to Ben Kwong, chief operating officer at KGA Asia.

Kwong himself has a Master’s degree in Buddhist Studies and follows that religion’s strict belief in cause and effect. And he said that wide-spread adherence to some of China’s ancient beliefs result in predictable effects on Chinese stock markets.

Take the “Chinese New Year Effect.” A 12-year IMF study noted that major Chinese Indexes rise during the Chinese New Year period, Kwong said. With a new lunar year starting Monday, January 23, that effect may already be on us.

"The upcoming new year is the year of the Dragon, an auspicious symbol, and many Chinese couples want to have a “dragon baby. The baby boom may stimulate the  demand for baby products, (and)  the recent strong share price performance of baby products  manufactures, (such as Goodbaby (1086.HK); Prince Frog (1259.HK);  and Boshiwa (1698.HK)) already partially reflected the  ‘Dragon Effect,’ ” Kwong said.

Traditions concerning celebration of Chinese New Year vary widely in China. But Kwong said it is common for people to spend lavishly on presents, decorations, food, and clothing. “Thus the festival sentiment should boost consumption, which may benefit … retail stocks,” Kwong told Equities in an email.

DAILY FIX

Hong Kong Blue Chips: +59, +0.3%, to 19,689, 1-18-12, Hang Seng Index

Chinese Stocks in Hong Kong: -10, -0.1% to 10,953, 1-18-12, HSCE Index

Shanghai Stocks: -1.4%, 2,266, 01-18-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: +6.3 86.7, 01-17-12, Bank of New York Mellon, ADR Index-China

Insight: Hong Kong blue chips traded 100 points higher early in the day, but a decline in Mainland markets capped gains. Funds flowed into insurance companies, but automakers retreated. KGI Asia. 1-18-12

Quotable: "Looking ahead, we expect mild slowdown in GDP growth will in the next quarter or two, but a hard-landing is unlikely. BOCOM International. 1-18-12

Chinese Company to Watch: "Evergrande Real Estate (3333.HK) Being cautious is a positive signal for the once-aggressive developer, in our view. At end-2011, cash balance increased from the RMB20.0bn at end-2010 to RMB27.2bn. The net gearing is estimated to drop down from the peak of 75 percent at end-1H11. A lower gearing in 2012 will be a major catalyst for the counter’s share price. We reiterate our recommendation of ‘STRONG BUY’ with a target price of HK$5.28. Haitong Securities. 1-17-12

Brokerages and analysts cited have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don't endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
SCE.P.J Southern California Edison Company 5.375% Fixed-to 24.65 -0.24 -0.97 16,206

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