Jan 18 (Reuters) - In the year of the Black Water Dragon, investors could get torched again if they leap back into the market too soon.
But the outlook is expected to brighten considerably later in the year.
In a world of economic turmoil that's scorched investors, it's tough to make predictions, but that's the forecast for Hong Kong's Hang Seng Index if one follows the principles of feng shui - the ancient Chinese art, or science, based on 'Qi', the natural flow of energy - according to brokerage CLSA.
CLSA analysts, dressed in bright, Mandarin-collared traditional clothes, on Wednesday presented their tongue-in-cheek stab at predicting what every feng shui-savvy investor needs to know - the outlook for stocks and local property prices in these volatile times.
Their report, brandishing a colourful melange of cartoons, graphs and caricatures, features on the glossy front cover a menacing black dragon sporting red and yellow swimming trunks and a matching snorkel about to take a dip in the ocean.
If the rest of the report is to be believed, that snorkel is not coming off any time soon in the Year of the Dragon that begins on Monday.
The Hang Seng is set to remain in a funk through the first-half of the year, according to Philip Chow, who in his day job covers the transportation sector for CLSA, but on Wednesday donned the mantle of feng shui master.
"The euro zone crisis scared the rabbit into its hole last year," said Chow, referring to the Year of the Rabbit which ends next Monday, according to the lunar calendar followed in China.
Last year's feng shui forecast scored 2 "spot-on" versus 5 "dead wrong" predictions, according to CLSA's own assessment, as a second-half slump across global financial markets appeared to be at odds with the gods.
For the Year of the Rabbit, the Hang Seng Index is poised to lose nearly 18 percent.
For the Year of the Dragon, which ends in early February 2013, there's unlikely to be much respite till the market's levels of desperation peak between May and July, said Chow, adding that then the picture will brighten.
"Overall, we're still looking at a happy ending," Chow predicted.
In terms of sector picks, Chow's colleague Emily Lam, a member of CLSA's Hong Kong and China institutional sales team, said feng shui dictates that water-related sectors such as shippers and water utilities are in for a good year.
Investors placing bets on the energy sector, in particular oil and gas, are likely to end the year disappointed.
Another top pick for the year is the Macau gaming sector.
But investors were warned that their odds would be as good, or as bad, as they are in one of Macau's glitzy casinos.
"Dragons breathe fire. So avoid getting burnt," said Lam.
One unique characterstic that differentiates the dragon from other animals featured in the Chinese zodiac is that no one, with due apologies to Chinese emperors, St. George and the like, has ever seen a dragon.
"In Chinese mythology, the appearance of a dragon marks a transition of power, or a turning point," said Chow.
In tune with that prediction, Vice-President Xi Jinping is widely expected to take over as general secretary of the Chinese Communist Party, a step towards eventual appointment as president in the world's second-largest economy.
"Based on his charts, there's not much to puzzle: What you see is what you get," said CLSA in the report.
Expect him to keep stability as the main focus.
"He didn't rise by rocking any boats. Nothing wrong with a spot of smooth sailing," said CLSA.
Its light-hearted look at Hong Kong's financial markets, now in its 18th year, was hosted at the Shanghai-esque China Club, in the old Bank of China headquarters in the city.