August is historically a rough month for the stock market across many major exchanges including the Asian markets as it is typically the year’s weakest month. The Dow Jones Industrial Average (DJIA) and the S&P500® (SP500) each posted declines on the first day of August with both closing in the red on Monday (2 Aug), though there was some recovery in the last two days.

Asia equity investors may face little respite in August – the MSCI Asia Pacific Index has fallen seven times out of the last ten Augusts, with an average decline of 1.8% (Bloomberg, 2 Aug). One possible reason is that trading activity tends to dry up as people go on holiday causing prices to swing more on thin liquidity.

August Is Usually Tough on Most Markets

The month tends to be a poor-performing month for the SP500. The index kicked off the month at 0.8% below all-time highs and closed down 0.2% on Monday to 4,387.16, though there was some recovery on Tuesday prior to another 0.5% decline on Wednesday to finish at 4,402.66. So far, the Hang Seng Index (HSI) is still showing solid performance for the month, with the index rebounding 0.9% to close above the 26,000 level at 26,426.55 points yesterday. Last year, the HSI gained 0.5% in August as during that time, investors began to anticipate the reopening of the economy (Investor’s Business Daily, 2 Aug), but in August 2019 the index fell 3.8%.

Weak sentiment with Delta variant spreading

This year, investors are coming into the month with sentiments already weak, as China’s regulatory clampdown and the spread of the delta variant in the region pummeled stocks in July. The HSI tumbled 5.1%, being its worst month since the height of pandemic fears last year, with investors being extra sensitive to newsflow on both fronts (Bloomberg, 2 Aug).

Another key risk for investors is the surge in coronavirus cases in the region, which has led to a North-South split in the Asian economy. According to Bloomberg, the latest PMI data pointed to a slump in activity in Southeast Asia, while North Asia continued to see a pick up as the global economy recovers.

Source: Macquarie Research - 5 Aug 2021