Every January, investors worldwide wonder: will the ‘January Effect’ boost the market—and their portfolios? In 2025, with shifting market dynamics and new policy moves, it’s time to ask whether this phenomenon still matters on the ASX, or if it’s just market mythology.
What is the January Effect?
The January Effect is a long-observed market anomaly where share prices—especially for small-cap stocks—tend to rise more in January than in other months. The theory is that year-end tax-loss selling in December depresses prices, and when the calendar flips, bargain hunters (and fund managers with fresh cash) push prices higher.
First named in the US, the effect has been noted on the ASX as well. But in a market now dominated by algorithmic trading, global flows, and regulatory changes, does this seasonal surge still happen?
Does the January Effect Still Exist on the ASX in 2025?
Recent ASX data shows a more muted January Effect than in decades past. Here’s what’s shaping the phenomenon now:
- Increased Market Efficiency: With trading now dominated by institutional investors and algorithms, anomalies like the January Effect are often arbitraged away quickly.
- Regulatory Shifts: 2024 brought new ASIC guidelines on ‘window dressing’—the practice of funds buying up winners at quarter-end—which may reduce artificial January inflows.
- Globalisation: The ASX is more connected to global events, so local seasonal quirks have less impact.
Yet, according to a 2025 CommSec analysis, the S&P/ASX Small Ordinaries Index did record a 2.1% average gain in January over the past 10 years, compared to 1.1% for other months. However, this gap has narrowed, and three of the last five Januarys actually saw negative returns.
Why Might the January Effect Fade?
Several factors have softened the January Effect in Australia:
- Tax Timing: Australia’s financial year ends in June, not December, so there’s less incentive for tax-loss selling before the calendar New Year.
- Superannuation Flows: Super funds are now the dominant force on the ASX. Their rebalancing is spread throughout the year, not just in January.
- More Sophisticated Investors: With widespread access to financial education and robo-advisers, retail investors are less likely to act in unison, diluting seasonal effects.
Still, January does see a return of trading volumes after the Christmas lull, often accompanied by a burst of optimism or risk-taking as investors reset their strategies for the year ahead.
Should Australian Investors Act on the January Effect?
Chasing seasonal trends is a risky game. While the January Effect once offered an edge, today’s data suggests it’s unreliable at best. Here’s what savvy Aussie investors should keep in mind in 2025:
- Don’t Bet the Farm: Any January surge is likely to be small and inconsistent. Building wealth comes from long-term investing, not calendar quirks.
- Focus on Fundamentals: Use January as a time to review your portfolio and check if your holdings match your financial goals, rather than chasing short-term gains.
- Watch for Volatility: January can be volatile as traders return from holidays and digest global news. Be prepared for swings, but don’t overreact.
Ultimately, the January Effect is more a curiosity than a roadmap in the modern ASX. Staying disciplined—and resisting the urge to time the market—remains the best strategy for most Australians.
