The adage “Sell in May and go away” is a well-worn refrain, but is there any truth to it? We analysed the FBM KLCI’s monthly performance over the past 21 years between 1995 and 2015. We found that in the month of May, the benchmark index fell on 10 occasions during this period, hardly conclusive evidence to be basing investment decisions on. In fact, we found the worst performing month to be August while the best month was December. Considering the simplest investment strategy is “Buy Low, Sell High”, perhaps investors should contemplate to do more selling between December-February and buying in August-September instead.
Comprehensively debunked. We found over the past 21 years that the market registered no gains on average, over the months of May. During this period, the market fell on 10 occasions (rising on 11). The FBM KLCI recorded seven months over which it declined between 9-12 occasions on average, which is close to even odds, according to the law of probability.
August bust. August recorded the greatest number of monthly declines (15), while December and October had the fewest declines, falling on just three and five instances respectively over the 21-year period. Markets registered average declines of 3% in August. Perhaps the tendency for markets to decline during the month of August can be attributed to the peak summer holiday month for northern hemisphere investors, when big-time institutional fund managers are more preoccupied with developing their sun tans. Or could it be because the Hungry Ghost Festival during the seventh month of the Lunar Calendar tends to fall in August as well?
December boom. Historically, December is the best performing month in the year with the markets gaining 3.2% on average. This suggests that the index has historically been susceptible to window dressing activities. Buy low, sell high. Note that January and February have been the “up” months with historical gains averaging 1.1% and 2.6% respectively. Considering that investors should “Buy low and sell high”, we conclude that investors would have the best probability of making gains by buying during the months of August-September and selling between December-February. Of course, the caveat is that a historical track record is no guarantee of future performance while much of it would also depends on the stocks invested in. Malaysia is a trading market. On a more serious note, we reiterate our view that Malaysia is very much a trading market where stock picking is critical for outperformance, driven by continued market volatility and compressed investment horizons. While trading interest has focused on large caps, we see value emerging in small-mid caps. Our BUY ideas below include stocks that offer growth with good governance although yield stocks are also attractive in the present low growth environment.
Source: RHB Research - 27 Apr 2016
http://klse.i3investor.com/blogs/rhb/95515.jsp
