As goes January ... so goes the rest of the year.
February got off to a rough start, with markets taking a tumble yesterday on revamped concerns about the sovereign-debt crisis in the euro zone. But last month's action is what smart investors should be focusing on right now.
In other words, what this past January showed us should weigh more heavily on the investment decisions we make throughout the rest of the year than a single day’s performance in February.
The mainstream media gave lots of attention to the Dow Jones punching through the psychological 14,000 barrier last week. Indeed, the stock market has been on a roll so far this year, up 5.04% in just the month of January.
That strong January performance has revitalized interest in the January Indicator.
The premise behind the January Indicator is that a positive January is the precursor of even-higher stock prices for the rest of the year.
There is some strong historical data that supports this theory. The S&P 500 index has been tracked since 1950. Since then, there have been 39 “up” Januaries and 24 “down” Januaries.
Out of those 39 positive Januaries, the S&P 500 went even higher for the rest of the year 34 times, which is an impressive 87% success rate. That’s one of the strongest correlations you can find.
The downside correlation isn’t nearly as strong.
Of the 24 “down” Januaries, the S&P 500 continued to fall 11 times or only 45% of the time. Clearly, the January Indicator isn’t as useful when January is a down month.
So Goes a Profitable January for U.S. Stocks …
Of course, nothing is guaranteed in the investment world, but a profitable January has been a pretty darn accurate predictor for the rest of the year and strongly suggests that the rest of the year is going to be even better.
If you’ve been sitting on the sidelines or burdened with a cash-heavy portfolio, I suggest you consider increasing your stock market allocation on this or the next dip.
… So Goes the Rest of the Year in Global Markets
That doesn’t mean you are required to invest in the U.S. stock market. I say that because historical evidence from all around the world suggests that the January Indicator works just as well for foreign markets.
Yup, I am talking about Asia, which is the largest continent in the world both in terms of size and population, and home to many of the fastest-growing economies in the world.
2013 should be a strong year for Asian economies. RBS recently wrote this about Asia:
“The U.S. and Europe will remain weak, that’s for sure. We expect 2% growth in the former and further mild contraction in the latter in 2013. But the past four years have shown that Asia doesn’t need strong growth from the G-3 to grow strongly itself. All it needs is the absence of collapse.”
And Asian stock markets are enjoying similar or even better performance than the S&P 500.
For example, the Hong Kong Hang Seng was up 4.7% and the Shanghai Composite Index gained 5.1% in January.
The top Asian market was Japan, where the Nikkei 225 Index had its best January in 15 years and jumped by an impressive 7.2%.
NOTE: If you didn’t read my column last week, I think you’ll find it very informative about why the Japanese stock market is so hot.
As you might expect, Asia-focused ETFs have delivered excellent returns so far this year. For example, the Market Vectors Vietnam ETF (VNM) was up 24.3% in January.
In fact, the only Asian stock market that didn’t go up in January was the South Korean KOSPI, which lost 1.8% for the month.
In short, prosperity was busting out all over Asia, which is why the Vanguard MSCI Pacific ETF (VPL) is trading at its highest level in 17 months.
The Vanguard MSCI Pacific ETF, which is designed to mirror the performance of the MSCI Asia Pacific Index, is up by 10% over the last three months.
The Vanguard Asia Pacific Index is allocated as follows: 58% to Japan, 26% to Australia at 26.2%, 9% in Hong Kong at 9.2%, and Singapore at 5.5%.
If you want to focus on specific countries, there are ETFs for every major Asian countries. For instance:
- iShares FTSI China 25 (FXI)
- iShares MSCI Hong Kong (EWH)
- iShares MSCI Taiwan (EWT)
- iShares MSCI Singapore (EWS)
- Market Vectors Indonesia (IDX)
- iShares MSCI Malaysia (EWM)
- iShares MSCI Thailand (THD)
- Market Vectors Vietnam (VNM)
- iShares MSCI Philippines (EPHE)
The only exceptions are the very emerging economies of Myanmar, Cambodia, and Laos.
The rewards are very high if you pick the right country: The iShares MSCI Philippines was up a whopping 48% in 2012.
You can also invest in Asian currencies: Market Vectors Chinese Renminbi/USD ETN (CNY), iPath JPY/USD Exchange Rate ETN (JYN), and the WisdomTree Asia Local Debt Fund (ALD).
And you can even target specific Asian sectors too such as Guggenheim China Technology (CQQQ), SPDR Russell/Nomura Small Cap Japan (JSC) and iShares MSCI Far East Financials Index (FEFN).
If the January Indicator is right — and it has been 87% of the time — the stock market is headed higher for the rest of the year. However, don’t restrict yourself to just the U.S. stock market because Asia is growing at up to 500% faster pace.
Let me put it this way:
Would you rather invest in a country whose economy contracted by 0.1% in the fourth quarter of 2012, or in a region that is growing by 5%, 6%, 7% or even more?
For my money, I’ll take the Porsche (Asia) over the Volkswagen (the U.S.), and so should you.
P.S. My friend and fellow global-focused investor Rudy Martin is revealing the 4 global mega-trends that will drive gold, stocks and other commodities through the roof. It all happens this coming Thursday, February 7 at noon Eastern. Registration closes Wednesday night at 11:59 p.m., so don't miss out. Click here now and we’ll make sure you get complete instructions on how to attend!
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02-08-2013 3:37 PM