Financial Blog

Ghost month 2024

Ghost Month, also referred to as the Hungry Ghost Month (HGF), is a time of spiritual beliefs deeply rooted in Asian culture. This month-long observance, filled with rituals and customs, revolves around the belief that deceased ancestors and wandering spirits return to the mortal realm. It is usually celebrated during the seventh lunar month which typically falls between July and August.

This year, it officially starts on August 4 and ends on the 2nd of September.  

During ghost month, it is common for businessmen to adjust their business strategies. Many believe that starting new ventures or making significant investments during this time may attract bad luck or even financial losses. As such, they would rather stay on the sidelines and plan for the upcoming months.

Historically, August tends to be a weak month for the PSEI with 20 negative returns in the past 30 years since 2014 with an average return of -1.96%. Correcting for years where in there was a crisis such as the 1997-1998 Asian Financial Crisis, 2007-2008 Global Financial Crisis, and the 2019-2020 Global Pandemic, average performance would have been a tad better albeit still negative at -0.42%. This suggests that there might be a correlation between this cultural event and negative returns for the PSEI.

Looking beyond the Philippines, there was a study made in 2021 on The Effect of Hungry Ghost Month Festival on Stock Market Returns and Volatility on Asian Stock Market written by Wan Mohd Farid Wan Zakaria Et. Al., for the IIMB Management Review. It was stated in the article that “although it may appear to be illogical in this day and age, cultural beliefs, such as the Hungry Ghost Month Festival, continue to influence people’s investment decisions across countries.” Their study revealed that all countries have significant positive or negative volatility during the HGF period except for Hong Kong. Singapore and Shanghai’s stock indices suffer from the HGF’s presence which resulted to lower and negative returns.

They suggest that this occurrence can be explained by the fact that these countries have a higher percentage of Chinese population.  However, the results are not as pronounced in countries such as Malaysia and the Philippines due to lower Chinese presence compared to the latter countries. They also noted that one probable reason to explain this phenomenon is that investors and fund managers typically go on vacation during the HGF period resulting in no capital flight and lack of significant market movement. It is Interesting to note however, that stocks perform well after the HGF month across the countries they covered in the study.

Reverting to the Philippines, since 1994 performance post HGF until the end of the year have been stellar with 15 out of the 30 years having positive returns with an average of 4.17%.

The odds of positive returns are more pronounced after the HGF until the end of the first quarter of the following year with 21 out of the 30 years ending green with an average return of 5.91%. Take note that the 4th quarter and 1st quarter of the year are regarded as the strongest quarters since they coincide with holidays such as Christmas and New Year which typically drive consumerism in the country.

This study and our observation regarding the performance of the PSEI during the HGF established two things: (1) August, regardless of the HGF or investors going into vacation, typically is a weak month for the index; and (2) Performance typically improve significantly after the HGF especially until the 1st quarter of the following year due to the holidays.

Our suggestion is if you are a short-term investor, short-term volatility or the lack thereof correlated to the celebration of HGF may be a cause of concern. However, for medium to long term investors, the weakness brought by the HGF can be seen as an opportunity to accumulate stocks at cheaper valuations, especially blue-chip stocks that may go down due to this temporary weakness in the market.

The celebration of the HGF should not overshadow macroeconomic improvements we have observed during the past couple of months (i.e. lower inflation) and the expected rate cuts in the next 6 to 12 months, which should be positive for the stock market.

Happy Hungry Ghost Month!

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