Aftershocks of carry trade at heart of market rout could still have reverberations
By Carolina Mandl and Laura Matthews
NEW YORK, Aug 6 (Reuters) -Investors said the aftershocks of a massive carry trade that has reverberated through global financial markets wasn't done yet, with more unwinding in the days ahead raising the risk of shake-outs to other assets.
The Nasdaq Composite .IXIC and the S&P 500 .SPX trimmed losses by the close on Monday, capping off a brutal three-day selloff while Tokyo markets rebounded from a similar rout in trading on Tuesday.
The massive selloffs had come after a higher-than-expected U.S. unemployment rate on Friday sparked worries the U.S. economy was heading for a recession. Concerns about the markets were exacerbated by investors winding down yen-funded trades that had been used to finance the acquisition of stocks for years after a surprise Bank of Japan rate hike last week.
The so-called 'carry trade' is commonly used in currency markets where investors borrow money from economies with low interest rates such as Japan or Switzerland, to fund investments in higher-yielding assets - this time stocks - elsewhere.
Despite the easing off in selling, investors were worried about more volatility ahead.
"We expect the sell-off to continue for maybe a few more days as usually these... trades are pretty large," said Zhe Shen, head of diversifying strategies at TIFF Investment Management. "People said 'wait, we're losing too much money from unwinding. Let's just hold and we'll unwind some more tomorrow."
The complete unwind of this yen-funded trade is likely to take days, potentially extending the market rout, Zhe said.
"There's tons and tons of yen carry trades that still have to be closed out," said Ulf Lindahl, CEO at institutional investors advisory firm Currency Research Associates.
Investors are still scrambling to figure out the size of those trades and how much of the cheap funding was deployed in equities.
Calculations made by hedge fund research firm PivotalPath show that hedge fund strategies most affected by a yen rally are global macro quantitative and managed futures, as they have short exposure to the Japanese currency. A spike in the yen this month indicates a loss of between 1.5% and 2.5% in August for those funds' indexes, according to the firm's exposure model.
"It's very, very hard to know what the actual size of those positions are and how much is hedged and how much isn't hedged, and therefore how much pressure is on," said Kathy Jones, chief fixed income strategist at Schwab. "When you get hedge funds that are leveraged, and maybe there are derivatives involved, you get a pretty sizable reaction."
UNWIND OF RISK
Some money managers or trading strategies had already been reducing risk in the past few days.
"Momentum certainly has been unwinding quite a bit in the past few days, and that's cutting across all asset classes," said Mike Gleason, director of equity alternative strategies at Acadian. "So, you have this response mechanism of multiple asset classes responding in kind.”
Steve Sosnick, head trader at IBKR Securities Services, said trading Sunday night and on Monday's open "had the feel of forced selling."
“There was a certain ‘get me out’ quality to the pre-market and opening trades that since have subsided," said Sosnick.
Hedge funds started unwinding risk roughly two weeks ago, when stocks started to fall. Morgan Stanley estimated on June 25 that macro hedge funds could sell $110 billion in the coming weeks if markets further deteriorated.
For some investors, the fact that the Nasdaq fell 10% below its record of 18,647.45 points on July 10 poses another challenge for a quick and sustainable bounce back.
"Most of the people haven't unwound anything yet because they think it's just a regular correction," Currency Research Associates' Lindahl said. "This is a serious thing, it’s not just the regular correction. You don't have gap openings for 4% or 5% in major indexes, and then they recover. There's a serious collapse that's coming."
On Monday evening, U.S. indexes futures opened in the black, pointing to investors taking advantage of lower valuations.
"We're seeing fair number of people who are looking to be buyers on this setback. I think that's probably going to give us more of a two-way market," said Schwab's Jones.
Reporting by Carolina Mandl and Laura Matthews in New York; editing by Megan Davies and Shri Navaratnam
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تازہ ترين خبريں
دستبرداری: XM Group کے ادارے ہماری آن لائن تجارت کی سہولت تک صرف عملدرآمد کی خدمت اور رسائی مہیا کرتے ہیں، کسی شخص کو ویب سائٹ پر یا اس کے ذریعے دستیاب کانٹینٹ کو دیکھنے اور/یا استعمال کرنے کی اجازت دیتا ہے، اس پر تبدیل یا توسیع کا ارادہ نہیں ہے ، اور نہ ہی یہ تبدیل ہوتا ہے یا اس پر وسعت کریں۔ اس طرح کی رسائی اور استعمال ہمیشہ مشروط ہوتا ہے: (i) شرائط و ضوابط؛ (ii) خطرہ انتباہات؛ اور (iii) مکمل دستبرداری۔ لہذا اس طرح کے مواد کو عام معلومات سے زیادہ کے طور پر فراہم کیا جاتا ہے۔ خاص طور پر، براہ کرم آگاہ رہیں کہ ہماری آن لائن تجارت کی سہولت کے مندرجات نہ تو کوئی درخواست ہے، اور نہ ہی فنانشل مارکیٹ میں کوئی لین دین داخل کرنے کی پیش کش ہے۔ کسی بھی فنانشل مارکیٹ میں تجارت میں آپ کے سرمائے کے لئے ایک خاص سطح کا خطرہ ہوتا ہے۔
ہماری آن لائن تجارتی سہولت پر شائع ہونے والے تمام مٹیریل کا مقصد صرف تعلیمی/معلوماتی مقاصد کے لئے ہے، اور اس میں شامل نہیں ہے — اور نہ ہی اسے فنانشل، سرمایہ کاری ٹیکس یا تجارتی مشورے اور سفارشات؛ یا ہماری تجارتی قیمتوں کا ریکارڈ؛ یا کسی بھی فنانشل انسٹرومنٹ میں لین دین کی پیشکش؛ یا اسکے لئے مانگ؛ یا غیر متنازعہ مالی تشہیرات پر مشتمل سمجھا جانا چاہئے۔
کوئی تھرڈ پارٹی کانٹینٹ، نیز XM کے ذریعہ تیار کردہ کانٹینٹ، جیسے: راۓ، خبریں، تحقیق، تجزیہ، قیمتیں اور دیگر معلومات یا اس ویب سائٹ پر مشتمل تھرڈ پارٹی کے سائٹس کے لنکس کو "جیسے ہے" کی بنیاد پر فراہم کیا جاتا ہے، عام مارکیٹ کی تفسیر کے طور پر، اور سرمایہ کاری کے مشورے کو تشکیل نہ دیں۔ اس حد تک کہ کسی بھی کانٹینٹ کو سرمایہ کاری کی تحقیقات کے طور پر سمجھا جاتا ہے، آپ کو نوٹ کرنا اور قبول کرنا ہوگا کہ یہ کانٹینٹ سرمایہ کاری کی تحقیق کی آزادی کو فروغ دینے کے لئے ڈیزائن کردہ قانونی تقاضوں کے مطابق نہیں ہے اور تیار نہیں کیا گیا ہے، اسی طرح، اس پر غور کیا جائے گا بطور متعلقہ قوانین اور ضوابط کے تحت مارکیٹنگ مواصلات۔ براہ کرم یقینی بنائیں کہ آپ غیر آزاد سرمایہ کاری سے متعلق ہماری اطلاع کو پڑھ اور سمجھ چکے ہیں۔ مذکورہ بالا معلومات کے بارے میں تحقیق اور رسک وارننگ ، جس تک رسائی یہاں حاصل کی جا سکتی ہے۔
