The fastest shorting in five years! Japanese stocks plummet as hedge funds accelerate betting on the downside
The Japanese stock market experienced the largest single-day crash in history between August 2nd and 8th, leading hedge funds to accelerate their bearish bets on Japanese stocks. According to a report by Goldman Sachs, for every long position on a Japanese stock sold by a long-short equity fund, 1.7 short positions are added. Hedge funds continued to bet against global stock markets for the fourth consecutive week, increasing their short positions. Data from Wall Street News shows that the Japanese stock market faced its darkest day ever, with the Nikkei index closing down by 12.4% on that day. A report by Morgan Stanley pointed out that overseas investors have been heavily selling off in the spot market of Japanese stocks, having sold about 90% of the net purchases made during the "Japanese stock frenzy" since April 2023
Global institutional brokerage giant Goldman Sachs released a report on Friday showing that during the period from August 2nd to 8th, when the Japanese stock market experienced a rare single-day plunge, hedge funds rapidly increased their bearish bets on Japanese stocks at the fastest pace in five years.
According to Goldman Sachs' report on hedge fund client fund flows, from August 2nd to 8th, for every long position in a Japanese stock sold by long-short equity strategy funds, 1.7 short positions were added. As of Thursday, August 8th, within the five trading days of the week, fund portfolio managers net sold Japanese stocks for four days, with Tuesday being the only day they bought more long positions than increased short positions.
The report pointed out that as the volatility of Japanese stocks spread overseas, hedge funds continued to increase their bearish view on global stock markets for the fourth consecutive week. On Thursday of this week, hedge funds' net exposure to Japanese stocks was 4.8%, lower than the 5.6% a week ago.
Wall Street News once used the following chart to show that on Friday, August 2nd, the Japanese stock market experienced its darkest day in history. The Nikkei index fell by 12.4% to 31,458.42 points. By the close of Monday, the Nikkei 225 index fell by 4,451.28 points from the previous Friday's close, marking the most severe single-day point drop in history, even more severe than the crash of "Black Monday" in October 1987, when the index fell by 3,836.48 points. Another Japanese stock index, the TOPIX index, fell by 12.2% on Monday, marking the largest single-day drop since the stock market crash in 1987.
Morgan Stanley pointed out in its report on Monday that from July 29th to August 2nd, the selling pressure on MSCI Japan Index stocks expanded to 1.1 trillion yen. It is estimated that overseas investors have sold a large amount of Japanese stocks in the spot market, accounting for about 90% of the net purchases made during the "Japanese stock boom" since April 2023. In other words, during this bull market in Japanese stocks, 90% of foreign capital has exited.
Although the Nikkei 225 index rose on Tuesday, Wednesday, and Friday this week, analysts from Morgan Stanley and UBS believe that Japanese stocks have not yet emerged from the gloom, successively lowering year-end target prices for major Japanese stock indices, and believe that yen carry trade unwinding transactions have not yet ended.
Morgan Stanley lowered the target for the TOPIX index from 2950 points to 2700-2800 points and lowered the target for the Nikkei 225 index from 42,000 points to 39,000-40,000 points. They have revised down the year-end target price for Japanese stocks, lowering the target for the Nikkei 225 index from 42,000 points to 39,000 points