Asia-Pacific Stocks Poised for Boxing Day Rally

As the Asia-Pacific region enters the final trading days of the year, markets are set to open higher, with several key markets closed for the Boxing Day holiday. The positive sentiment is buoyed by a rebound in manufacturing output data from Singapore and the start of the seasonal Santa Claus rally. However, the closure of several markets may temporarily reduce liquidity and increase volatility.

Singapore's manufacturing output data for November surprised investors, with a 1.2% month-on-month increase, defying expectations of a 0.5% decline. This unexpected growth, driven by a rebound in electronics output, has boosted investor confidence in the region. The positive data has contributed to the anticipated higher opening of several markets, including Japan's Nikkei 225, despite the holiday closures.



The holiday season often brings increased market volatility due to reduced trading volumes. However, the Santa Claus rally, which occurs in the last five trading days of the year and the first two of January, has historically been a positive period for markets. The S&P 500 has seen an average gain of 1.3% during this time, surpassing its usual seven-day return of 0.3% (LPL Research). This positive trend is likely to influence Asia-Pacific markets, as they often follow global cues.

Geopolitical dynamics, such as US-China relations, also play a significant role in shaping Asia-Pacific market sentiment. Tensions between the two superpowers can lead to uncertainty and volatility in regional markets. Conversely, improved relations can boost market confidence. Investors should monitor US-China relations to anticipate potential market movements in the Asia-Pacific region.

While the holiday season may limit trading volumes, potential spillover effects on neighboring markets that remain open could be minimal. A study on the Boxing Day tsunami's impact on world equity markets found few abnormal return changes and a general increase in long-term systematic risk, indicating that the tsunami had minimal effects on the risks and returns of equity markets. Therefore, the closed markets may not significantly impact the open markets during the holiday season.

In conclusion, Asia-Pacific stocks are poised for a Boxing Day rally, driven by positive manufacturing output data from Singapore and the start of the Santa Claus rally. However, investors should be mindful of the reduced liquidity and increased volatility that may accompany the holiday closures. As always, it is essential to stay informed about geopolitical dynamics and monitor market trends to make informed investment decisions.