The Asian Sell-off Continues…
February 27th, 2007
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Asian stocks are resuming their declines in early trading, as Japan’s Nikkei 225 dropped as much as 3.23% just after the opening bell.
Markets had not yet opened in Shanghai, where the Composite Index’s 8.8% loss Tuesday triggered a global sell-off.
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Are you familiar with the Yen carry trade? My understanding is that major banks and funds have been borrowing yen at a .25% interest and investing it in other parts of the globe for a greater return and then repaying their loans. So where have they been investing their Yen loans? Anybodies guess, but I’m thinking it’s in a little bit of everything…..equities, commodities, development, etc. So if this Yen carry trade unwinds (unwind meaning the value of the Yen rises violently forcing banks/funds to liquidate), you could see spin off selling in other markets, i.e. today’s blood.
On another note, our equity markets haven’t had any sort of correction since June, so this selloff today, percentage-wise, shouldn’t be seen has too horific….although this was the biggest selloff since 9/11, and on a chart it does look awfully ugly….
1/4%! Holy cow, I’d be carrying that too! But no, to answer your question I am not familiar with the Yen carry trade, but I am now, and it makes perfect sense.
I think a correction is good (creates a buying opportunity if you ask me) so long as it doesn’t run uncontained.
-Grant
Update: Shanghai’s composite index continues to fall… but it opened higher for what that’s worth…
Might be a lousy trading day again tomorrow. I’m anxious to see how gold continues to react, if it stabilizes in the morning, I may buy some more, but I think additional correction is in store, at least through the morning.
-Grant
No wonder the Shanghai sell off was so brutal, Winston! It’s just a matter of time before the lenders want all their yen back.
If this proves true, gold looks more and more attractive every second.