Chinese Stocks: Putting Faith in Numbers

Hickey and Walters (Bespoke) submit: This morning's WSJ has a front page article titled "Chinese Investors Crunching Numbers Are Glad To See 8s." In China, many believe that "numbers contain the clues to good fortune," and the number 8 is about as good as it gets, with its pronunciation "sounding similar to the Chinese word for wealth." Since Chinese stock tickers are made up of 6 numbers, an 8 in the ticker (or in the stock's price) might influence an individual's decision to buy the stock. Conversely, the number 4 is linked to "death," so investors supposedly take notice when 4 shows up as well.

It's not our job to pass judgment in this case, so instead we did some number crunching of our own to see how stocks in the Shanghai Composite with 8s or 4s in their tickers have performed year to date. From the looks of it, the numbers have proved meaningless so far.

As shown in the table below, stocks with 2 "8"s in their ticker are up an average of 158.8% this year compared to stocks with no "8"s up an average of 169.9%. Stocks with 2 "4"s are up an average of 177.8% compared to stocks with no "4"s up an average of 175.4%. What this table really shows is that Chinese stocks are up, and up a lot:

Even though the Shanghai Composite is up 55.12% year to date, the average stock in the index is up 173.85%. Since the index is cap weighted, this is a real sign of large caps underperforming. We broke the index into deciles based on their market cap and computed the average year to date performance of each decile. The largest decile is by far the biggest underperformer at 132.9%. But this still doesn't show how the index can be up just 55.12% while the average stock is up 173.85%. The key to this is that the largest 10 stocks are up only 43% and the largest stock, Industrial & Commercial Bank of China, is actually down 10%. The Industrial & Commercial Bank of China also makes up over 10% of the index, and its ticker is 601398 -- so much for 8 being a lucky number.

Comments

[omooc]

I am amazed that (1) you are able to collect data needed for this study, and (2) you have time to do such a study. It is certainly interesting. I recall having read a similar article, on US stocks, saying to the effect that if a stock's symbol is pronounceable, it tends to produce a higher return than one that is not pronounceable (say HOG vs BVN). A lot, of course, depends on the sample size. Yours seems to be all-inclusive, which makes your study more reliable. Thanks. omooc

[JW]

smart mind!