JPMorgan Chase: Trend reversal faster than expected, hedge funds return to Japanese stocks
JPMorgan Chase analyst report shows that trend-following hedge funds have changed their bearish stance on the Japanese stock market and started buying Japanese stocks last week. Despite recent market volatility, analysts believe that this shift has come faster. After experiencing selling pressure, CTAs have resumed their positions in Nikkei 225 and TOPIX index futures since mid-August. The market's confidence in the Bank of Japan's intention to raise interest rates, along with strong economic data, has eased panic and attracted more funds based on systematic trading strategies to flow back
According to the information obtained by the Smart Finance and Economics APP, analysts at JPMorgan Chase stated in a report last Friday that trend-tracking hedge funds have changed their bearish view on the Japanese stock market and started buying Japanese stocks later last week. After selling off recently due to "excessive index rebound," commodity trading advisors (CTAs) who profit from market trends using algorithms may have started to restore their positions in Nikkei 225 and TOPIX index futures around August 15.
This shift occurred faster than the brokerage firm had previously expected. JPMorgan Chase analysts had previously anticipated that if the Nikkei index temporarily rebounded above 35,000 points after a sharp drop in early August, CTAs would adopt a wait-and-see attitude.
The benchmark Nikkei 225 index recorded its largest single-day drop since 1987 on August 5, and has since rebounded by over 20% from the low point reached on August 5. Last Friday, the index closed above 38,000 points.
Analysts pointed out that the large-scale deleveraging of systematic trading strategies by CTAs was one of the factors that led to the unexpected rate hike by the Bank of Japan triggering a global market collapse. Systematic trading strategies use strict rules, rather than speculators' intuition, sometimes involving coding and algorithms, to guide trading and investment decisions.
Following Bank of Japan Deputy Governor Masayoshi Amamiya's assurance to the market that rate hikes will be gradual, Japan's strong second-quarter economic data, and easing concerns about a U.S. economic recession, the panic selling of the yen in global funding trades has eased.
Masanari Takada, JPMorgan Chase's global quant and derivatives strategist, said that as of August 9, CTAs had likely sold about 50% of their long positions in Nikkei futures. The SG Trend Index tracking a group of CTA daily returns fell by 4.4% in the first 15 days of this month.
Takada added that despite suffering significant losses in the recent market turmoil, the performance of trend-following funds and macro funds has started to recover.
JPMorgan Chase stated that CTAs are engaging in "tentative buying," and added that if the recovery of Japanese stocks continues, other macro hedge funds, CTAs, and funds following this trend will also re-enter the market