Market omens in Year of the Rat

VIEW FROM Hong Kong

Superstition and the Hong Kong stock market are long- time partners. Sceptics may scoff but there are few places of business more susceptible to Chinese superstitions than Exchange Square, the monstrous skyscraper that houses the stock exchange.

The Lunar New Year, which fell last week, is a time for heightened concerns about various aspects of Chinese belief.It is always important to leave one year and enter another with good news, so there is almost always a market rally both immediately before and after the new year.

As the Year of the Pig ended there was indeed a rise in the Hang Seng Index. However, when the market opened again last Thursday, ushering in trading during the Year of the Rat, the market dived, more worried by the US Federal Reserve's reluctance to lower interest rates than concern to preserve the good "fung shui" which is so important for business.

Fung shui is the art of reconciling man and his environment, and fung shui experts know how to bring these two forces together in a beneficial manner. Literally fung means wind and shui is water. These two elemental forces must flow in the same direction to ensure success and tranquillity.

Many a foreigner has come to the Hong Kong market sniggering at the inordinate efforts made to achieve good fung shui. Suffice to say that many of these sniggering foreigners end up with all the usual fung shui signs littering their offices. Fish tanks are common, filled with gold- coloured fish, bringing both the hope of prosperity because of their colour and because the Cantonese word for fish is auspicious.

It is unthinkable for a company to make an offering of shares on a day not considered to be auspicious - especially a date including the number four, which sounds like death in Cantonese. Companies large and small employ the services of fung shui masters or geomancers to advise on the layout of their premises, and few architects undertake projects without some input from these experts. It should be stressed that none of this is considered to be eccentric. Indeed a number of geomancers have taken up the study of fung shui after being employed in the finance sector.

Wong-hoi is one well-known practitioner - even though he only started his fung shui career four years ago. Before that he was a stockbroker. His predictions and advice are now carried in a number of Chinese newspapers. Looking at the Year of the Rat, he forecasts that the economy will be like "a wealthy man in poor health and a golden house filled with poor people". He says this means that on the surface things will look fine but digging deeper reveals a host of problems. "The economy will suffer, especially in the first half of the year, after which it will improve, but not until August," he says.

Mr Wong's predictions are not too dissimilar from those of more conventional economists, while his views on the stock market are markedly different from conventional wisdom. He likes financial, electronics, publishing, and entertainment stocks - not exactly favoured by most market analysts. But then analysts in Hong Kong have a rather unimpressive track record, which has been underlined in the past four years with the publication of a Fung Shui Index, not by a Chinese stock broker but Credit Lyonnais Securities.

It began in 1992, taking the advice of leading experts and combining them to form a year-long prediction for the stock market. The company freely admits that the whole thing was originally conceived as a last- minute fill-in, under duress from the production department which wanted to fill a blank space and thought of a fung shui chart.

In its second year, the Year of the Cockerel, the Fung Shui Index proved to be remarkably close to the Hang Seng Index although it did miss a couple of market movements. In its third year, the Year of the Dog, the Fung Shui Index did less well, but more or less redeemed itself last year, the Year of the Pig.

Credit Lyonnais says that its index "embarrassingly seems to capture a little more attention than it should from the international investment community - much to the dismay of our hard-working analysts".

So, what's in store for the rest of the year? The rat year is seen as generally bad with only international investors placed to make money. Retail investors are likely to get their fingers burned. A pick-up is expected only at the end of 1997 when construction in the harbour is completed, so that obstructions to money flowing through the harbour have been removed.

If the fung shui chart is right, the Hang Seng Index will end the year well down. This prediction is somewhat out of line with the received wisdom of mainstream stock market pundits. However, a lot of people are putting their faith in the elements of wind and water and, as ever, it is perceptions which move markets, so some prophecies become self-fulfilling.