Last year, we had published an article with a comparative monthly analysis of S&P 500 - an index of 500 largest companies based on their market capitalization in the United States, having common stock listed on the NYSE or NASDAQ, with NEPSE. The 20 years of historical data indicated that both market indices were reached to its peak level in the month of December and were reached to its bottom in the month January for a majority of the time. Based on these common behaviors of the both stock markets, we had proposed an investing insight – buy in January and sell in December.
Today, we are going to re-confirm the proposed investing insight based on the same 20 years of historical data through different ways.
In this section, both indices are divided into 5 years window and derived average monthly numbers. The plots of those four, 5 years’ average monthly performance are presented in the graph below which shows a clear upward movement from January to December for the period S&P 2003 – 2007 and S&P 2013 to 2017. Other two period's movements are flat or inconclusive. Similarly, NEPSE has also exhibited the similar behavior - visible upward moves for the periods NEPSE 2003 - 2007 and NEPSE 2013 - 2017. These monthly behaviors of both stock indices support the proposed investing insight – buy in January and sell in December.
In this section, we present the average monthly index figures in the graphs which show the S&P and NEPSE movements and their relations even though the relationships are unclear. But, we can see some inconsistent opposite moves for the period 1998 – 2002 and 2008 -2012. If there would be a consistent opposite moves, we would take an insight that the investors could choose to invest in the alternate market when the other market does not perform well. Or, simply, eligible investors can diverse their portfolio between S&P 500 and NEPSE to minimize their investment risks. On the other hands, we can see the re-confirmation of January low and December high for the majority of the periods.
Once again, the whole period average monthly price performance further reconfirmed that the stock market start lower from January and reach to its peak in the month of December. These are the data-driven re-confirmation of the monthly price performance of both stock markets. If we take insights to buy in January and sell in December, we would possibly make positive returns in our investment in the both markets. Further, the graph also indicates that the S&P gives two entry opportunities (January and October) in a year whereas NEPSE gives only January opportunity.
Finally, we would like to present interplay of both stock indices for the last 20 years which shows that the 3rd running bull in the S&P and NEPSE in its correction phase of its 3rd bull market. But, S&P has always behaved as a leading performer and NEPSE, a follower. In 2001, NEPSE was in its high where correspondingly S&P had experienced a fall. Ironically, in 2008 and 2009, S&P had performed its worst but NEPSE was testing it's the then peak. Later, NEPSE had followed the longer than expected drop compares to S&P. These patterns indicate that S&P has some lagging effect on the Nepalese Stock market even though there seems no connection between these two isolated stock markets by its location and by its economic connections of the hosting countries. In other words, the success and failure in the S&P 500 replicate in NEPSE after a brief time gap which gives an opportunity to manage their assets to the investors in NEPSE.
This relationship between S&P and NEPSE could be an interesting investing insight to the investors who live abroad and would like to see the investment opportunities in the Nepalese capital market. Currently, the nation's agenda is to soften the regulations and to welcome the savings residing abroad.
Bottom line: The analysis presented above reconfirms the investing insights suggested in the previous article - buy in January and sell in December, is now further strengthened. The inclusion of S&P 500 in the analysis would help local investors be aware of the western stock market behavior in connection with our local market. And, the final thought with regards to Nepalese living abroad might think to start investing in Nepal since the regulatory scenarios are now getting softer and the government is aiming to attract the financial recourses to help to re-build and re-restructure the country’s needs. We are now assumed that this article will certainly add some value to the discussion of welcoming foreign investment to Nepal to rebuild Nepalese industries and its economy as a whole.
(* The author is a Gold medalist in M. Phil in Management with specialization in Finance in 2012, Tribhuvan University. Now, he works for a consulting firm in New York. The opinion presented in the article is personal. You can reach to the author at email@example.com)