Forget the January effect--this year watch the Lunar New Year effect

02/08/2010 4:14 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

When thinking about when to buy Chinese stocks, don’t forget the Lunar New Year effect.

China’s New Year holiday stretches from February 13 to February 21 this year. And Shanghai and other Chinese stock markets will be closed for five days from Monday February 15 through Friday February 19.

Counting weekends that means nine days with no trading.

In preparation for a long-break with no buying or selling stock traders usually work hard in the days before a holiday to square positions. In the case of China’s stock markets that’s likely to mean selling to limit exposure during the long no-trading period. (Would you want to be unable to sell if something in Europe, for example, really went south?)

 At the least the holiday is likely to add volatility to an already volatile market.

A holiday sell-off would likely produce a post-holiday rally.

Leading Chinese investment companies Citic Securities, China’s largest brokerage company, and rival Shenyin Wanguo Securities have both recently predicted that markets will rally after the holiday.

In China that kind of prediction tends to act as a self-fulfilling prophecy. At least in the short run.

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