Does Chinese New Year affect markets?

Various commodities, the yuan and some of the Chinese stock market can see volatility around the ‘Golden Week’ of Chinese New Year. Find out everything you need to know about trading the Chinese New Year.

Chinese New Year and China’s economy

Chinese New Year is on Sunday 22 January 2023. This marks the start of the Chinese Lunar New Year Golden Week – a week-long national holiday that’s the largest festival in the Chinese calendar and is celebrated all over the world. The festival is known to influence the country’s economy, so it does have knock-on effects on financial markets both in the build-up to and after the event.

Golden Week was first implemented in 2000 by the Chinese government as a way of boosting domestic consumption and tourism. It was aimed at giving workers a chance to visit their hometowns and see their families over the New Year.

The public holiday is technically seven days long. All workers are given at least the main day – January 23 – off work, but many companies are closed for the whole week.

The lunisolar calendar used to mark the Chinese New Year is also used across Japan, Korea and Vietnam. Even Malaysia and Indonesia observe the holiday – although not for the full week – due to their large Chinese populations. As such, the Chinese New Year Golden Week can have a serious impact on the activity of Asian economies.

The clearest impact on the Chinese economy is when it comes to trade, particularly in exports. There is an annual drop in output at the start of the New Year, followed by another fall in the middle of the year to coincide with the Mid-Autumn Festival. The date of this holiday also varies each year, but it’s only two days long, so the recovery is quicker.

Let’s look at stocks, the yuan and commodity markets separately and explore the impact the Chinese New Year has on them.

Is the Chinese stock market closed for the New Year?

Customarily, there is a full or partial closure of Chinese stock markets for the New Year. This is especially true on January 23 2023 itself, which is typically when families hold reunion dinners to celebrate and spend time together.

For Chinese New Year 2023, stock market closures are as follows:

What is Chinese New Year’s effect on the stock market?

The impact of the Chinese New Year on the stock market is mixed. Generally, there is a positive sentiment in the build-up to Golden Week that can boost the China A50, but the sentiment is often quick to reverse once the market closes.

Before the stock markets close, we see a lot of profit-taking behaviour to finance spending over the holiday period, which can cause fluctuations in share prices.

However, this is normally followed by a rise once the market reopens. For example, in 2022, Hong Kong shares saw their best session in two weeks once the market reopened after Lunar New Year’s three-day closure – the Hang Seng (Hong Kong 50) index was up 2.71%.

Meanwhile, the companies that remain open over the holidays can experience a massive boost in demand. These are mainly across transport and tourism, due to the uplift in people travelling both domestically and internationally to visit their families, and in retail – where there’s a lift in sales of products like jewellery and home appliances.

China is known as the world’s largest exporter of goods, so when most of its factories are shut for a long period of time, it causes a massive rush to get orders in ahead of the closure. This means that shipping companies see a huge rise in demand. US freight forwarder Flexport has previously said that it sees a rise in demand from the middle of December, which then eases a couple of weeks after the holiday.

Once the factories reopen, they’re often slow to get back on their feet due to a backlog of orders, capacity issues and a smaller workforce if workers have found employment elsewhere.

We also see a pattern of Chinese stocks that are listed on other exchanges – such as Hong Kong and in the US – lifting over the Lunar Holiday, as investors look for other ways to get exposure to the positive sentiment.

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Chinese New Year and the yuan

It’s tradition to give cash as gifts in the form of ‘red packets’ for Chinese New Year. This demand for cash can lead to a strengthening of the Chinese yuan against other major currencies at the start of the year. The increase in travel and tourism for the country also sees an increase in demand for the yuan, as people swap their foreign currencies for the renminbi over the period.

The USD/CNH has ended January lower four out of five times in the past five years (2018-2022).

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Chinese New Year and commodities

The Chinese New Year also pushes up demand for gold as people look to give jewellery as gifts. But the supply of gold is usually plentiful so the influence this has on gold prices is minimal.

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However, as a growing economy – with a huge construction industry – China’s demand for other metals is notable. So, when the economy slows down over the holiday, the trading volumes for industrial metals have been known to fall. For example, in 2017, the London Metal Exchange saw copper futures volume fall by 50% against the 12-month average on the first trading day after the start of the Chinese New Year 2017.

The slowdown over the Golden Week can also mean there is a shortage of materials when factories do resume operation, which compounds delays in economic activity.

The increase in travel can see a massive demand for oil, which can play out on oil prices too. Discover how to start oil trading.

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