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Feng Shui Index: Reliable or not?!

Stocks

Written by:

Zhi Rong Tan

The CLSA Feng Shui Index is an index developed by the investment firm CLSA to track the performance of Hong Kong-listed companies using the concepts of feng shui, a Chinese system of geomancy that is thought to bring good luck and wealth.

The Index, which debuted in 1992, aims to inform investors about which companies are considered to be in harmony with the natural environment and potentially more profitable.

Since then, the Index has become a lighthearted predictor of the Hong Kong market, with investors comparing its performance to major market indexes such as the Hang Seng Index.

Outlook for 2023

According to the forecast, the Hang Seng Index is anticipated to have a challenging year in 2023. Two drops are expected in the following three months before a strong market comeback in November.

Following this forecast, investors who want to time the market could either start investing in March or wait for the second half in August and October, where the market is likely to bottom, before capitalizing on the November rally.

Sector-specific

In the same report, CLSA has also made certain sector predictions based on the five elements of feng shui.

The Five Elements, also known as the Five Phases or Wu Xing in traditional Chinese feng shui, are said to be the underlying principles of natural events and each is linked to certain industries.

  1. Wood: Wood-related industries include agriculture, forestry, and construction.
  2. Fire: Fire-related industries include banking, entertainment, and technology.
  3. Earth: Earth-related industries include real estate, property management, and retail.
  4. Metal: Metal-related industries include mining, manufacturing, and engineering.
  5. Water: Water-related industries include shipping, transportation, and tourism.

Note that these are just general associations, and companies in the same industry might be represented by different elements depending on the situation.

Having stated that, here are the predictions.

Fire-related industries are expected to record a profitable year in 2023. These companies include oil, gas, fashion, semiconductors, and technology, which will peak in late spring.

On the other hand, metal-related businesses like banking, finance, insurance, metal, and mining are expected to suffer the most as ‘Metal’ is absent from the Bazi yet again.

Aside from these, others in the wood, water, and earth-related industries are expected to fare ordinarily. If you’re curious, you can find out more here.

How reliable is it?

The next question would be then how well these predictions performed. To answer that, let’s have a look at the last five years of forecasts.

TLDR: Not so good.

2022 (Year of the Tiger)

Prediction Result: Somewhat Accurate

The feng shui index predicted a booming year for Hong Kong equities last year, with potential downswings in March and September.

Instead, the Hang Seng Index fell to its lowest level since 2008 in October and finished the year with the worst annual performance in 11 years after the market fell constantly throughout the year before recovering in November.

To give the benefit of the doubt, the shape appears to be fairly similar, with the decline forecasted in late February and again in July. Nonetheless, the extent of the loss was underestimated, which resulted in the market to closed the year lower.

2021 (Year of the Ox)

Prediction Result: Not Accurate

Similarly, 2021 was expected to start with a small rally. Following that, it was predicted that the benchmark index would peak in August and close the year higher, albeit with some pullbacks in April and October. 

In reality, the peak had came early in February. Since then, the Hang Seng Index sunk dramatically throughout the year as China came down hard on technology businesses, unleashing a trillion-dollar meltdown.

All in all, the Hang Seng Index fell 14% in 2021, ranking the worst among major global indices.

2020 (Year of the Rat)

Prediction Result: Somewhat Accurate

Once again, the forecast indicated that the Index would have a good start to the year.

While there will be some setbacks along the way, with the start of the new 12-year astral cycle, the Hang Seng index is expected to perform strongly in 2020.

This is true for the vast majority of the months. However, the massive drop in the first half may have invalidated this forecast.

2019 (Year of the Pig)

Prediction Result: Somewhat Accurate

2019 was anticipated to be a lacklustre year for the Index, beginning with a drop at the start of the year, followed by two more sharp drops in July and November, wiping out whatever gains for the year.

Indeed, as projected by the Index, 2019 was a year with little gain, and it was somewhat correct on the market volatility, with the sudden drop and rise.

Nevertheless, the first half was forecast incorrectly. If investors had avoided the market owing to the prediction that the stock market would decline, they would have missed the early surge, which peaked in April.

2018 (Year of the Dog)

Prediction Result: Not Accurate

2018 was another year that was anticipated to get off to a strong start before exhibiting a more subdued performance until July, where it would pick up steam until the end of the year.

This, however, did not happen as the market, which peaked early in February, continued to drop all year.

Overall, the accuracy might be rated to be below average. Two of the prior five years were entirely incorrect, while the other three may be said to be only marginally accurate, depending on how you interpret it. Regrettably, as you can see, the Feng Shui Index cannot be considered a reliable forecaster.

Conclusion

The CLSA Feng Shui Index provides investors with a unique perspective on which companies are thought to be in line with traditional Chinese feng shui principles and may be more profitable. It’s a unique way to invest, but you should take its prediction with a pinch of salt.

Ultimately, it’s important to conduct your research and due diligence before making any investment decisions.

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