Author: Chen Zhi, 21st Century Business Herald
Editor: Zhou Yanyan, 21st Century Business Herald
The panic caused by the sharp drop in Japanese and Korean stocks has spread to the European and American markets. On the afternoon of August 5, several brokerage firms issued a statement saying that due to abnormalities in the upstream system of the U.S. stock night trading, trading has been suspended during today's night trading session.
U.S. stock night trading suspended! Brokerage firms issue urgent reminder
Futu Holdings said in a statement, "Dear customers, due to an abnormality in the upstream system of the U.S. stock night trading, trading has been suspended during today's night trading session. The scope of this impact includes most brokerages that provide night trading services. We are contacting the upstream to communicate. We apologize for the inconvenience caused to you."
Tiger Brokers also sent a message to investors saying: "Due to abnormalities in the U.S. stock night trading exchange system, trading has been suspended during today's night trading session. It is understood that all brokerages that support night trading are affected. We are contacting the exchange for communication. We are deeply sorry for the inconvenience caused to you."
According to Watcher.Guru, Robinhood has suspended trading for 24 hours.
Big tech stocks fall pre-market
On August 5, S&P 500 futures extended losses to an intraday low, down 3.3%.
Nvidia's pre-market decline in US stocks widened to 13%. On the news front, it was reported that the company's new artificial intelligence chip was delayed and the overall market was generally declining.
Other trillion-dollar tech stocks also fell, including Apple, Amazon, Microsoft, Google's parent company Alphabet and Facebook's parent company Meta Platforms. Tesla's stock price also fell more than 10% in pre-market trading. These seven stocks together account for about 43% of the Nasdaq 100 index.
Spot silver and spot gold continue to fall
On August 5, spot silver continued to fall, with the decline widening to more than 6.8% to $26.59 per ounce; spot gold fell by 3% to $2,367.5 per ounce.
Many countries expressed their willingness to rescue the market
According to the Shanghai Securities News, officials from many countries responded after the stock market fluctuated violently.
On Monday, Japanese Finance Minister Shunichi Suzuki expressed strong concern about the stock market decline. Stock prices are determined by the market, and it is important for the government to make decisions calmly.
Suzuki said it was difficult to say what was behind the stock market's decline. He added that the government was working with the Bank of Japan (BOJ) and would continue to closely monitor the market and keep an eye on the foreign exchange market. He declined to comment on whether the current yen level was considered too high. Suzuki said it was best for foreign exchange rates to move in a stable manner and reflect economic fundamentals.
South Korean regulators also made several comments to calm investor sentiment, with the Ministry of Finance saying it would respond to heightened market volatility in accordance with its contingency plan. South Korean regulators also said today's stock market decline was "excessive" and that they would closely monitor foreign exchange and stock markets and take prompt market stabilization measures if necessary.
Thailand will expand a government equity fund in October to support the stock market, the finance minister said on Monday, adding that the market's fall was due to external factors.
Thailand's main stock index fell 2.93% on Monday to its lowest since early November 2020, dragged down by a global market sell-off fueled by fears of a U.S. recession.
Thailand's finance minister has previously said the government's fund invested in stocks will increase by 100 billion baht to 150 billion baht.
Japanese stocks "Black Monday": overseas capital closes positions on a large scale
On August 5, the Japanese stock market ushered in "Black Monday".
As of the close of the day, the Nikkei 225 index closed at 31,078 points, down 13.46%, with the largest intraday decline exceeding 15%. As of the close, the Nikkei 225 index has basically wiped out all the gains since the beginning of this year.
According to an interview with 21st Century Business Herald, industry insiders believe that the Japanese stock market suffered a "Black Monday" mainly due to multiple factors:
First, the Bank of Japan's interest rate hike and balance sheet reduction measures last week caused the market to lower the performance growth prospects of Japanese export-oriented companies' stocks, triggering a wave of profit-taking;
Second, the escalation of conflict in the Middle East may cause the Middle Eastern funds that previously invested in the Japanese stock market to quickly withdraw and return to their home countries;
Third, the weak July non-farm payrolls data in the United States triggered concerns about a hard landing of the U.S. economy, which led to a corresponding decline in investment confidence in the Japanese stock market;
Fourth, the sharp drop in European and American stock markets last Friday may cause some European and American investment institutions to repatriate funds to their home countries to "offset" the margin calls on leveraged investment portfolios in Europe and the United States.
Several emerging market investment fund managers told reporters that another capital force that cannot be ignored that caused the sharp drop in the Japanese stock market was the large-scale "closing" of reverse yen interest rate carry trades by overseas capital.
Why are overseas capital keen on reverse yen carry trading?
A reporter from 21st Century Business Herald learned that due to the Bank of Japan's continuation of its extremely loose monetary policy, there are two major yen arbitrage transactions in the financial market.
First, Japanese local investors first borrow low-interest yen to increase investment leverage, then convert yen into foreign currencies such as US dollars, invest in overseas high-yield bonds or stocks, and earn considerable interest rate differential returns;
Second, more and more overseas investment institutions are also borrowing low-interest yen to increase investment leverage and then investing in the Japanese stock market, betting on the rise of the Japanese stock market and the appreciation of the yen to make profits. Since the latter is completely different from the Japanese carry trade funds operated by local Japanese investors, it is also called the "reverse yen carry trade" in the financial market.
Influenced by factors such as Japan's continued economic recovery last year (escaping economic deflation) and increased dividend repurchases by Japanese listed companies, more and more overseas capital has adopted a reverse yen carry trading model, increasing its holdings of Japanese stocks and betting on a rise in the Japanese stock market.
In particular, the stock god Buffett adopted the method of issuing Japanese yen bonds for financing and then buying Japanese stocks at the bottom to obtain rich returns, which made overseas capital more eager for reverse yen interest rate carry trading.
Many emerging market investment fund managers said that during the period of the Japanese stock market's surge since last year, the amount of overseas capital flowing into the Japanese stock market accounted for more than 30% of the total inflow of funds into the Japanese stock market, of which a considerable proportion of overseas investment funds came from reverse yen carry trades. Behind this is the characteristic of reverse yen carry trades of "small gains for big gains", that is, overseas capital can obtain higher capital leverage by using lower interest expenses, multiplying the investment scale, and thus obtaining higher returns from the rise of Japanese stocks.
A foreign exchange broker revealed to reporters that another important reason for the popularity of reverse yen carry trades is that many overseas investors are optimistic about the future appreciation prospects of the yen. Although the yen-dollar exchange rate has been falling since last year due to the Bank of Japan's continued extremely loose monetary policy, overseas investors believe that the Bank of Japan will tighten its monetary policy sooner or later, causing the yen exchange rate to rise sharply, making reverse yen carry trades gain considerable returns in terms of exchange.
"Since the end of last year, as the yen exchange rate against the US dollar has continued to fall, even falling below the 160 integer mark at one point, overseas capital has adopted a strategy of buying more as the price falls - that is, the more the yen exchange rate falls, the more they will exchange dollars for more yen (or borrow more low-interest yen) and buy the Nikkei 225 Index ETF, waiting for the harvest season of yen appreciation," he pointed out.
Today, with the Bank of Japan raising interest rates and shrinking its balance sheet, the weak U.S. non-farm payrolls data in July triggering the Federal Reserve to cut interest rates by 50 basis points in September, and tensions in the Middle East continuing to escalate, the yen-dollar exchange rate has risen sharply from 161 at the beginning of July to around 142.85. Overseas capital has seen the lucrative exchange gains from reverse yen carry trades, and has sold Japanese stocks in large quantities and converted yen into dollars, reaping huge exchange gains.
