Investors in the UK stock market stand to reap significant benefits during December, with the month contributing to a substantial portion of annual returns, a phenomenon known as the 'Santa rally.' This effect is more pronounced in the UK than in most other major markets, except for Hong Kong. Data from eToro, examining the price returns of 14 major global stock indices, indicates that December returns average 1.63%, which is significantly higher than the 0.57% average monthly return from January to November. Consequently, December typically accounts for 23% of the annual gains seen in these markets.
The FTSE 100, since its inception in 1984, has particularly stood out, with December returns averaging 2.29%, which is 1.93 percentage points higher than other months and represents 36% of its annual performance. The FTSE 250 also experiences a notable Christmas rally, with average December returns of 2.71%, surpassing the monthly average by 2.19 percentage points.
Hong Kong’s Hang Seng Index leads the global indices in terms of December performance, with an average increase of 3.1% since records began in 1965, which is 2.15 percentage points above the index's average monthly return for the rest of the year. This contributes to 23% of the Hang Seng's average annual performance.
eToro Analyst Sam North commented on the trend, highlighting the historical significance of December for global stock markets and the potential impact on retail investors. North pointed out that while the reasons behind the seasonal boost vary, the data underscores the importance of staying invested long-term to capitalize on performance spikes.
The study also showed that Japan’s Nikkei 225 index benefits from the Santa rally, with December gains of 1.98%, which is 1.59 percentage points higher than the average for the rest of the year, accounting for 32% of its annual performance.
Not all indices experience the Santa rally, as Spain’s IBEX 35 tends to underperform in December compared to other months. However, the ASX 200 in Australia, with a December performance of 1.36%, demonstrates that the Santa rally is a global phenomenon, extending beyond the Northern Hemisphere.
North concluded by emphasizing the regional differences in the Santa rally's impact and suggested that investors should be mindful of local market dynamics to optimize their investment strategies during the festive season.
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