Kyle Bass must be happy today, his predictions of unsustainability of Japan’s boom saw the first glimpse of reality. NIKKEI 225 (INDEXNIKKEI:NI225) fell 7.3 percent today, its first such fall in over six months. A string of events and speculations contributed to this shakedown, the most plausible being that many investors just thought this would be an opportune time to take profits as Bernanke hinted towards tapering of quantitative easing in US, in yesterday’s testimony.
Cyclical Sell Off Or Real Trouble for Nikkei
Most of the hedge fund managers have been bullish on Japanese equities, we have discussed their massive profits in the past articles. Interestingly the unloading of Japanese companies by these funds had begun before the recent sell off in the benchmark index. SocGen noted that strength of longs in Nikkei had started faltering since April 23. The recent sell off was likely the continuation of funds exiting their stakes and bagging profits, BAML’s analysts also agrees that the decline is not as linked to US policy or China’s PMI data as much as media is making it. The future hinges more on what course yen takes, it rose 0.769 percent against the dollar today and if this bounce is not temporary, then it could mean a boost in Abe’s fiscal easing.
Hedge Funds Betting On Japanese Equities
While we know all the major macro funds, Paul Tudor’s Tudor BVI Global, Caxton Associates, Discovery Capital’s Discovery Global, and so many others have exposure in short yen trades, we do not know how much they have allocated in the equity markets. In case of Third Point, Dan Loeb has a position in Sony Corporation (NYSE:SNE) (TYO:6758) which gave away 5.7 percent today.
Michael Katz’ GlenRock has longs in Japanese automakers, motorcycle companies and airport managers. Argonaut Capital, founded by David Gerstenhaber, is a strong believer of Abenomics and consequently has major exposure in Japanese equities.
Odey Asset Management has a long position in NIKKEI 225 (INDEXNIKKEI:NI225) which is among the top ten holdings of its Odyssey Fund. TT International has longs in Mitsubishi UFJ Financial Group Inc. (TYO:8306), down 9 percent today, Tokyo Tatemono Co., Ltd. (PINK:TYTMY) (TYO:8804) down 13 percent, Sumitomo Realty & Development Co., Ltd. (TYO:8830) down 11.5 percent and Bridgestone Corp (PINK:BRDCY) (TYO:5108) which lost 6 percent today in trading.
Nippon Value Partners, which is a Japan focused program has long positions in Kuraray Co Ltd (TYO:3405), down 8 percent and Asahi Diamond Industrial Co., Ltd. (TYO:6140) which lost 5.6 percent today. Woodbine Capital has longs in Nikkei and Topix Bank Index which have performed very well for its returns.
All of these funds are not down on their positions yet as the 7 percent decline is still a far cry from wiping off the appreciation that the index took in the past months. However if the trend of unloading continues, then that would be a different story.