It’s no secret that the Chinese stock market was off to a terrible start this 2016, as the government considered lifting emergency measures only to end up adding more uncertainty in the financial markets. This led US equities to chalk up their worst weekly open since records began, wiping off billions in value from the markets in just a few days.
In the previous years, the start of the Chinese New Year did serve some relief to financial markets which had been reeling in earlier weeks. Back in 2014, Asian assets had been tumbling after the US central bank began its tapering process in the previous month, but the holiday closure allowed investors to reassess their positions and start off on a much stronger footing in the days that followed.
In addition, the start of a new fiscal year for most Chinese businesses is usually accompanied by positivity, which might then translate to better consumer confidence and stock market performance. Also, with factories and firms expected to be closed during the Spring Festival, orders and shipments might be pushed earlier and allow profitability to look stronger in the days leading up to the holiday.
However, given how returns have fared at the start of this year, it’s also likely that the Chinese New Year festivities might simply spark a temporary bounce rather than an actual reversal from the selloff. Traders could take this opportunity to book profits off their bearish positions and look for better opportunities to establish their short trades after the correction is over, triggering a prolonged downtrend for equities and commodities throughout the year.