Asian Shares Rise in Thin Post-Christmas Trading

Asian markets kicked off the post-Christmas trading period on a positive note, with shares mostly higher in thin trading. The Japan-China agreement on easing visa conditions for Chinese tourists and conducting talks on contentious security issues has boosted investor confidence, leading to strong gains in Japanese stocks. This article explores the factors driving Asian stock market performance during this period and the impact of geopolitical events on investor sentiment.

The Japan-China agreement has sparked a rally in Japanese stocks, particularly in retail and tourism-related sectors. Isetan Mitsukoshi Holdings and J. Front Retailing Co., major department store groups, gained 7% and 8.8%, respectively, while automakers also saw large gains. This agreement signals improved bilateral relations, which can stimulate tourism and trade, benefiting related sectors. Additionally, the planned talks on security issues may help alleviate tensions, further boosting market sentiment.

Seasonal factors, such as the "Santa Claus rally" and holiday effects, also impact Asian stock market performance during the post-Christmas trading period. The "Santa Claus rally," a historical phenomenon where stocks rise during the final five trading sessions of a year and the first two of the new one, has been observed in Asian markets. For instance, the S&P 500 has generated average and median returns of 1.3% during this period since 1950, outpacing the market's average seven-day gain of 0.3%. Additionally, the holiday effect, where stock returns on the days preceding holidays tend to be abnormally higher, has been documented in Asian markets. A study focusing on the holiday effect in Asian stock markets found that a significantly positive Chinese New Year effect exists for 2 days before, 3 days before, and 2 days after the Chinese New Year in the Shanghai market.

Investor sentiment plays a crucial role in Asian stock market performance, especially during the post-Christmas trading period. A study using text messages from stock investors' social networks and natural language processing techniques revealed that investor sentiment in a 7-day cycle has a 5 + 2 cycle of variability. From Monday to Friday, investor sentiment is disturbed by stock market sentiment, showing profit-seeking and risk-averse preferences. During the weekend holiday, stock market disturbance to investor sentiment becomes lower, investor sentiment is substantially higher, and volatility is narrowed, showing a typical holiday effect. This recurring cycle of 5-day trading days and 2-day holidays is a direct exogenous factor contributing to the 7-day cycle of investor sentiment.

In conclusion, Asian stock markets have started the post-Christmas trading period on a positive note, driven by geopolitical events, seasonal factors, and investor sentiment. The Japan-China agreement has boosted investor confidence, while the "Santa Claus rally" and holiday effects have contributed to market gains. Understanding these factors can help investors make informed decisions during this period. As the markets continue to evolve, investors should monitor geopolitical developments, seasonal trends, and investor sentiment to capitalize on opportunities and mitigate risks.