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The January Effect: Does the STI Always Rise in January?

The January Effect: Does the STI Always Rise in January?

The January effect is a hypothesis that the stock market tends to outperform in the first month of the year. The effect was first observed in 1942 by investment banker Sidney B. Wachtel and that small-cap stocks tend to perform better than the broader market in January.

There are a few reasons why stock prices tend to rise in January but I wanted to find out if the January effect holds true in Singapore as in the U.S.

Can investors simply ride the January effect and make decent gains simply by investing in the STI for the first month of every year?

I decided to do some research: I had a look at the STI chart and recorded how much the STI gained (or lost) from its opening price on Jan 1 to its opening price on Feb 1 from 1990 to 2015.

STI 1990-2015: Yahoo Finance

Does the STI rise every January and, if so, by how much? Here are the results:

Year 1 Jan Open 1 Feb Open % Change
1990 1449.5 1528.8 5.47
1991 1153.5 1267.7 9.90
1992 1479.4 1526 3.15
1993 1524.1 1620.4 6.32
1994 2427.4 2338.7 -3.65
1995 2339.6 2083.4 -10.95
1996 2266.5 2451.9 8.18
1997 2216.8 2214.9 -0.09
1998 1530.2 1264.7 -17.35
1999 1339.57 1427.35 6.55
2000 2502.28 2241.78 -10.41
2001 1922.81 1984.43 3.20
2002 1622.31 1804.96 11.26
2003 1338.02 1299.79 -2.86
2004 1768.78 1835.12 3.75
2005 2065.15 2097.66 1.57
2006 2354.59 2425.67 3.02
2007 3015.74 3151.27 4.49
2008 3462.69 3015.9 -12.90
2009 1761.56 1746.47 -0.86
2010 2897.62 2745.35 -5.26
2011 3190.04 3179.72 -0.32
2012 2646.35 2906.69 9.84
2013 3188.59 3286.65 3.08
2014 3179.67 3011.41 -5.29
2015 3364.08 3398.51 1.02

From the data over the last 26 years:

  • The STI made gains in the month of January for 15 out of 26 years
  • The STI remained flat in January for three of those years (1997, 2009, 2011)
  • The STI made losses for 11 out of 26 years

So it seems in the overall scheme of things, the STI does tend to rise in January. And in the years the STI posted gains in January, the average return was 5.39%. Pretty damn decent!

However, when you include all the flat/losing years, the overall average return is only 0.42%.

The reason for this? The STI suffered double-digit losses in 1995, 1998, 2000, and 2008 which pulled overall returns down. If you recall, we had Nick Leeson sending Barings Bank to oblivion and the Kobe earthquake in 1995, the Asian Financial Crisis in 1998, a prelude to the Dotcom Bubble in 2000, and Global Financial Crisis in 2008.

So what does this mean for investors like us?

Bottom line, the STI does tend to rise in January but the moment the bad news seems to be getting out of hand, it’s best that you get out!

In my next article, I’ll explore if the January Barometer also holds true for the STI. Stay tuned!

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Robin Han
Adam Wong

Adam Wong is the chief editor of The Fifth Person and was featured on 938LIVE as a guest expert on MoneyWise. He is also the author of the national bestseller Lucky Bastard! which made the Sunday Times Top 10 Bestseller's List in 2009 and Value Investing Made Easy, which made the Kinokuniya Business Bestseller's List in 2013. An avid investor himself, Adam shares his personal thoughts and opinions as he journals his investing journey online. If you're interested to learn more about stock investing, you can join The Fifth Person Newsletter and receive free weekly insights on how you can generate higher returns and dividend income from the stock market.