Japan’s Nikkei has been the worst performing major global index, correcting by 10,968 points or 26% from its 52-week peak of 42,426.77. On Monday, it fell over 12% to settle at 31,458.42.
BoJ’s interest rate hike in 17 years has disturbed the yen carry trade, spooking the markets.Carry-trade is a popular trading strategy, where an investor borrows money from a country with low interest rates, through a weaker currency and reinvests the money in another country’s assets, which gives a higher rate of return.
“It is all carry trade reversal in yen in which risky currencies and assets are being sold and risk-off currencies like yen, yuan CUD (Canadian Dollar/US Dollar) are getting bought…. i.e. low yield currencies,” Bhansali said.
Korea’s Kospi Composite is next to follow with a 15.7% decline from its 52 week high. Hong Kong’s Hang Seng Index, France’s CAC 40, China’s Shanghai Composite and Nasdaq Composite have witnessed a double digit fall up to 14%. Germany’s Dax, S&P 500, UK’s FTSE and Dow Jones have fallen between 4% and 8.7%.
Nifty’s 1,023 points fall from its all-time high of 25,078.30 is more on external factors than of its own making like fears of a looming recession, Bank of Japan’s 25 bps rate and the geopolitical tension.
Moreover, a series of data announced in the world’s largest economy, the US, has unsettled global markets over the last couple of sessions. A higher than expected unemployment numbers is being seen as the trigger and media reports are not ruling out aggressive rate cuts this year with bets of off-cycle downward revision of Fed rate.
“The recent rise in unemployment rate activated the Sham rule which states that when the three-month moving average of the national unemployment rate rises by 0.50% or more relative onset the recession fears in the economy,” Anil Kumar Bhansali, Head of Treasury and Executive Director at Finrex Treasury Advisors LLP said.
Nifty today ended the day at 24,055.60, falling by 662.10 points or 2.68% over the Friday closing. In 2024, so far its returns stand at 10.64% while they are to the tune of 22% over a 1-year period.
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