HSI of GBP & EUR Witness a Bear May

Every investor is worried about the “poor May” effect with the exact month approaching, especially in terms of the Stock Exchange of Hong Kong (HKSE), which is ascribed to the situation where the most of the plummet was encountered in May by this market over the past decade or so. In fact, HKSE is not alone. The gold market and the forex market have become relatively bearish, GBP, in particular, featuring the high possibility of being weak in May.

As a matter of fact, the saying “May is poor, June is bleak, and July will turn around” was jargon originating from the film and tourism industries decades ago instead of the stock market. Hong Kong saw a high birth rate in the past, thereby boasting a large population of students. They were not allowed to go to the cinema because of their preparation in May for the exams in June, which led to the pale box office, whereas July enjoyed the recovery due to the start of post-exam summer holidays, amid which parents took their children to the theatre. This description has been applied to the performance of HKSE in May because of its slump in this certain month over the past decade or so.

In addition to psychological factors, two causes are estimated to play a role in weakening HKSE in May. USD embraces a strong performance in this month on one hand, and investors sell their products to leave the market, or “sell in May and go away”, due to the Labour Day holiday in May nationwide on the other hand.

According to the statistics, Hang Seng Index (HSI) increased twice but suffered a decline for 8 times in May during the past 10-year period from 2011 to 2020, including a constant fall from 2008 to 2010. As such, if calculated on this situation, the possibility of the plummet seen by HSI will be 80%. In contrast, Shanghai Stock Exchange (SSE) had a tranquil performance with 5 drops and 5 rises in May over the past decade, while SPX and Nasdaq grew for 7 times mixed with a decline for 3 times, and DJIA harbored the increase for 6 times in spite of falling for 4 times. Although the Wall Street also bears witness to “sell in May”, it is not always the case.

As for the forex market, non-American currencies are weak to different extents in May. Among them, GBP suffered a total drop in May over the past decade while EUR increased twice but decreased for 8 times, and AUD witnessed a decline for 7 times regardless of the rise for 3 times. It is believed that the strong momentum generally enjoyed by USD in May should be mainly blamed for this situation, featuring DXY that fell only twice but rose for 8 times in May in the past ten years. Speaking of the gold market, the decline showed up for 7 times combined with the presence of the growth for 3 times, and LME copper experienced the drop for 6 times and the rise for 4 times. Therefore, metals and non-American currencies are generally weak under the context of the strong USD in May.

It is GBP in particular that should be paid attention to because of local elections in England and the Scottish Parliament election on May 6th. It is estimated that some candidates of the governing Conservative Party may fail due to Johnsons scandals. In addition, Scottish National Party (SNP) believes that it will embrace a landslide victory in the Scottish Parliament election so that the independent referendum can be promoted further, which strengthens the instability of GBP.