Does Chinese New Year affect markets?

Article By: ,  Former Senior Financial Writer

Various commodities, the yuan and some of the Chinese stock market can see volatility around the ‘Golden Week’ of Chinese New Year. Find out everything you need to know about trading the Chinese New Year.

 

Chinese New Year and China’s economy

Chinese New Year is on Sunday 22 January 2023. This marks the start of the Chinese Lunar New Year Golden Week – a week-long national holiday that’s the largest festival in the Chinese calendar and is celebrated all over the world. The festival is known to influence the country’s economy, so it does have knock-on effects on financial markets both in the build-up to and after the event.

Golden Week was first implemented in 2000 by the Chinese government as a way of boosting domestic consumption and tourism. It was aimed at giving workers a chance to visit their hometowns and see their families over the New Year.

The public holiday is technically seven days long. All workers are given at least the main day – January 23 – off work, but many companies are closed for the whole week.

The lunisolar calendar used to mark the Chinese New Year is also used across Japan, Korea and Vietnam. Even Malaysia and Indonesia observe the holiday – although not for the full week – due to their large Chinese populations. As such, the Chinese New Year Golden Week can have a serious impact on the activity of Asian economies.

The clearest impact on the Chinese economy is when it comes to trade, particularly in exports. There is an annual drop in output at the start of the New Year, followed by another fall in the middle of the year to coincide with the Mid-Autumn Festival. The date of this holiday also varies each year, but it’s only two days long, so the recovery is quicker.

Let’s look at stocks, the yuan and commodity markets separately and explore the impact the Chinese New Year has on them.

 

Is the Chinese stock market closed for the New Year?

Customarily, there is a full or partial closure of Chinese stock markets for the New Year. This is especially true on January 23 2023 itself, which is typically when families hold reunion dinners to celebrate and spend time together.

For Chinese New Year 2023, stock market closures are as follows:

 

Closure dates

Shanghai Stock Exchange

Monday January 23 to Friday January 27

Shenzhen Stock Exchange

Monday January 23 to Friday January 27

Hong Kong Stock Exchange

Monday January 23 to Tuesday January 24

Singapore Stock Exchange

Monday January 23

 

What is Chinese New Year’s effect on the stock market?

The impact of the Chinese New Year on the stock market is mixed. Generally, there is a positive sentiment in the build-up to Golden Week that can boost the China A50, but the sentiment is often quick to reverse once the market closes.

Before the stock markets close, we see a lot of profit-taking behaviour to finance spending over the holiday period, which can cause fluctuations in share prices.

However, this is normally followed by a rise once the market reopens. For example, in 2022, Hong Kong shares saw their best session in two weeks once the market reopened after Lunar New Year’s three-day closure – the Hang Seng (Hong Kong 50) index was up 2.71%.

Meanwhile, the companies that remain open over the holidays can experience a massive boost in demand. These are mainly across transport and tourism, due to the uplift in people travelling both domestically and internationally to visit their families, and in retail – where there’s a lift in sales of products like jewellery and home appliances.

China is known as the world’s largest exporter of goods, so when most of its factories are shut for a long period of time, it causes a massive rush to get orders in ahead of the closure. This means that shipping companies see a huge rise in demand. US freight forwarder Flexport has previously said that it sees a rise in demand from the middle of December, which then eases a couple of weeks after the holiday.

Once the factories reopen, they’re often slow to get back on their feet due to a backlog of orders, capacity issues and a smaller workforce if workers have found employment elsewhere.

We also see a pattern of Chinese stocks that are listed on other exchanges – such as Hong Kong and in the US – lifting over the Lunar Holiday, as investors look for other ways to get exposure to the positive sentiment.

Want to trade Chinese stocks? Take a look at our shares and indices offerings, or open an account to get started.

Chinese New Year and the yuan

It’s tradition to give cash as gifts in the form of ‘red packets’ for Chinese New Year. This demand for cash can lead to a strengthening of the Chinese yuan against other major currencies at the start of the year. The increase in travel and tourism for the country also sees an increase in demand for the yuan, as people swap their foreign currencies for the renminbi over the period.

The USD/CNH has ended January lower four out of five times in the past five years (2018-2022).

Start trading CNH currency pairs today, or learn more about forex trading.

Chinese New Year and commodities

The Chinese New Year also pushes up demand for gold as people look to give jewellery as gifts. But the supply of gold is usually plentiful so the influence this has on gold prices is minimal.

Learn how to trade gold online.

However, as a growing economy – with a huge construction industry – China’s demand for other metals is notable. So, when the economy slows down over the holiday, the trading volumes for industrial metals have been known to fall. For example, in 2017, the London Metal Exchange saw copper futures volume fall by 50% against the 12-month average on the first trading day after the start of the Chinese New Year 2017.

The slowdown over the Golden Week can also mean there is a shortage of materials when factories do resume operation, which compounds delays in economic activity.

The increase in travel can see a massive demand for oil, which can play out on oil prices too. Discover how to start oil trading.

Want to trade commodities? Open an account to get started, or practise trading in a demo account first.

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein 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 invest, 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.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

© City Index 2024