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Thursday, 19 January 2012

Feng shui investing: year of the dragon

by Josh Noble

With the year of the rabbit drawing to a close, thoughts turn to the prospects for the year of the dragon. Dragons are said to be highly auspicious, provided their natural ferocity can be kept in check.

Should investors be scared? Or do the soaring wings of the mythical beast offer equity markets a flight into the stratosphere?

CLSA’s Philip Chow, shipping analyst and occasional feng shui master, offered up his findings after a look into the crystal ball using the ancient Chinese art of feng shui.

As a quick reminder, last year was tough. Few investors will miss the timidity of the rabbit – an easily frightened animal, who bolted underground at the very mention of the letters EFSF. The year was also burdened by elemental imbalance, with a dangerous excess of fire and metal. Chinese markets performed poorly.

But the dragon – the only mythical beast among the 12 zodiac signs – is made of sterner stuff. What’s more, 2012 in has no fire in its charts at all, and only a touch of metal, making it a generally smoother ride.

However, the first half of the year looks troubling, with the dragon – a black water dragon to be precise – keeping its head firmly underwater.

The summer months will suffer from a scorching amount of heat, meaning the market is set for a lacklustre first six months, and July could see the worst of it. Sell in May and go away.

Another worrisome reading comes for Angela Merkel. The German chancellor is (zodiac-wise) a wooden horse, and is thus unsuited to a water dragon year. In fact, Chow says Merkel’s charts predict a “shocker of a year”. Assume the eurozone crisis continues throughout, perhaps escalating in the summer.

The dragon, however, is essentially a gamechanger, and is characterised by both dramatic turns of direction, and extreme speed.

August should see an inflection point, with the dragon bursting out of the sea and soaring into the sky. The third quarter rally should be a powerful one.

The reading for heir-apparent Xi Jinping offers further hope. Dragons herald a change in emperor. Historically, new leaders would often “see dragons” just before assuming power, and thus have the blessing of the gods. Xi’s charts look fine – if somewhat unspectacular. If China is about to crash, it won’t be this year.

The flow of money is set to head from east to west. Expect China to keep snapping up eurozone bonds and European assets, and expect capital outflows to continue making their way into Manhattan penthouses. Treasury yields will remain low.

As for sectors, it’s all about water and wood. That means load up on water-related sectors like Macao gaming, shipping, tourism, and woody plays in agriculture and fashion. Of particular interest should be cement – a neat mixture of water and earth.

There’s a saying in Chinese – you can never see the dragon’s head and tail at the same time. That’s because it moves so fast. The rally will run out of steam by December, and dragon is likely to rest for the remainder of the lunar year.

The silk-clad Chow is keen to stress that CLSA’s feng shui index is presented with tongue firmly in cheek. Indeed, last year’s predictions were somewhat off.

But those pondering an August inflection point would do well to mark the Jackson Hole address in the diaries. Any announcement of QE3 from Ben Bernanke could be just the catalyst needed to turn things around.

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