The Golden Week is celebrated in mainland China twice every year. The first of these, known as the Chinese Lunar New Year Golden Week (or the Spring Festival), falls in January or February. The second of these, which includes the National Day and the Mid-Autumn Festival, is celebrated in October. These semi-annual events, which last for 7 days each, were implemented by the government in 2000, with the aim of boosting domestic tourism, while giving people a long break to visit their hometowns.
In 2017, the first day of the Chinese New Year is on January 28, marking the beginning of the year of the Red Fire Rooster. The Golden Week spans from January 28 till February 2 this year.
Dynamics in the Impact of the Golden Week
Not a Constant: The date of the Chinese New Year is determined by the lunisolar calendar, which means that the dates of the Golden Week shift every year of the Gregorian calendar. This makes it more difficult to use historical data to predict the impact on the financial markets.
Not Limited to China: Apart from China, the lunisolar calendar is used by Japan, Korea and Vietnam. Even Malaysia and Indonesia, which have a large Chinese population, observe the holidays, albeit not for the complete week. Thus, the New Year Golden Week has a meaningful impact on the Asian markets.
China’s Burgeoning Influence: A little over a decade back, China’s impact on the global economy was not as significant as now. And, its impact on the global financial markets was limited. The situation has changed dramatically in the last ten years. China’s ranking among the world’s economic superpowers rose to #1 in 2015, according to the International Monetary Fund (IMF), and the country is expected to retain this position in the foreseeable future. China’s contribution to world GDP is estimated at 18% in 2016. With the Asian dragon becoming the single largest contributor to world GDP, its economic performance has an massive influence on world markets.
Golden Week Influences Financial Markets
The Golden Week was implemented to promote internal consumption, and the success of this initiative has played a role in China’s economic growth. The one thing that has been consistent during this period is the significant increase in volatility in financial markets. This is caused by a number of factors:
Profit Taking: Since Chinese companies are closed for the week, the financial markets witness a great deal of profit-taking activity prior to this time, resulting in fluctuations in the commodity and stock markets.
Disruption Caused by Chinese Companies Closing: Importers of goods from China scramble to complete orders before the Golden Week and retailers stock more inventory. The shipping industry and, in turn, oil prices are impacted. The week creates disruptions for importers and exporters worldwide.
Financial Markets Slow: Equity, forex and commodity trading in the financial hubs of Hong Kong and Singapore comes to a near standstill on some of the days during the Golden Week. Trading volumes in Asia fall dramatically during this time. And there is a ripple effect on worldwide trading.
Tourism and Retail Industries Receive a Boost: The past few years have seen a large number of people travelling overseas during the Golden Week. Moreover, China receives a huge influx of tourists during this time. These trends influence CNY (yuan) trading which in turns affect the offshore renminbi trading, the CNH. The business of overseas retailers, especially those in the luxury segment (including gold jewellery), gets a fillip which is why we sometimes see a shift in gold prices around this time of year.
Announcements: Some Chinese companies and even government agencies at times reserve announcing bad news for the Golden Week. This is done in an attempt to reduce the impact of the news on the financial markets.
Sentiments: Positive sentiment during the run-up to the Golden Week lifts the FTSE China A50 Index as well as the stock markets in the emerging economies. Chinese stocks traded in the US (as American Depositary Receipts or ADRs) also respond positively. However, this trend typically reverses in the weeks following the Golden Week.
Notes to Investors
Some of the key points investors may take note of are the volatility leading up to the Golden Week, the market calmness during week and possible gaps that may appear when everyone returns to business by the end of the week. Whether trading the CNH, oil, gold or CNX index, there’s plenty of action to be on the lookout around this time. And if you’re new to trading the Fear Index (VXX), this may be an opportunity to get a feel for trading it.
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