Currencies

Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading

Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading

Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading

Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading

Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Financial

Tokyo braces for treacherous Friday trading


Posted on September 22, 2016

People walk past the Bank of Japan building in Tokyo...People walk in front of the Bank of Japan (BOJ) building in Tokyo August 20, 2007. BOJ will scrutinise the impact of turmoil in global financial markets at a policy meeting this week, with worries over market sentiment seen marking it hard to justify a rate hike. REUTERS/Toru Hanai (JAPAN)©Reuters

Tokyo trading floors are predicting a treacherous session on Friday as the Bank of Japan begins to roll back the most glaring distortions of its ¥6tn exchange traded fund (ETF) buying campaign.

With the market closed for Thursday’s national holiday, Friday’s will be the first full session since the BoJ formally announced that its ETF buying programme would now favour funds tracking the market-capitalisation ranked Topix index over the more opaque, price-weighted Nikkei 225 Average.

    As well as potentially sharp sell-offs of stocks with heavy weightings in the Nikkei 225 Average, brokers are expecting strong participation by high-frequency traders and retail speculators as they attempt to second guess the precise moment that the central banks’ trades are put through.

    The move, which was broadly welcomed by investors on a day that left many uncertainties over the BoJ’s next move, was the latest significant change to a controversial ETF buying programme whose annual rate the BoJ raised from ¥3.3tn to ¥6tn at its meeting in July.

    Yujiro Goto, a market strategist at Nomura Securities, said the BoJ’s amended programme, which would see it making ¥2.7tn purchases of Topix-linked ETFs “can be viewed as positive for the equity market, as the sustainability of ETF purchase operations will be strengthened”.

    Earlier in the summer, say brokers, about 55 per cent of the BoJ’s ETF purchases were focused on funds that track the Nikkei 225 — an index that accords four stocks a combined 20 per cent weighting and is described by Zuhair Khan, an analyst at Jefferies in Tokyo, as a “particularly bad” choice for a central bank to favour.

    According to Mr Khan’s calculations, the BoJ’s heavily skewed purchases of Nikkei-tracking ETFs mean it may already own 48 per cent of the free floating shares of Fast Retailing, 24 per cent of Advantest and hold about 10 per cent of the free float of around 30 Japanese companies.

    The BoJ’s purchases have also caused the available free float of certain companies to dry up, risking even greater distortions in the stock prices of companies such as NTT Data, Kikkoman, Hokuetsu Kishu Paper and Matsui Securities.

    Markets seem a bit confused . . . and rightly so. The Bank has effectively told markets that it has a Royal Flush and the markets are questioning [BoJ governor Haruhiko] Kuroda’s poker face

    – James Athey at Aberdeen Asset Management

    By contrast, the BoJ’s concentration on the Nikkei has left it underweight the banking and automotive sectors — the backbone of corporate Japan and the industries that include Toyota, Mitsubishi UFJ Financial Group and the country’s biggest companies by market capitalisation.

    The distortion became so pronounced that the NT Ratio Index — a gauge of how closely the Nikkei and Topix track one another — blew out to a 17-year high. When the BoJ began informally reversing its Nikkei focus in September, the ratio began to fall sharply.

    On Wednesday afternoon, trading reflected a renewed scramble by investors to position themselves for the BoJ to increase its focus on the Topix. With buying focused on market capitalisation, the Nikkei closed the day 1.9 per cent higher while the Topix surged 2.7 per cent.

    The relative clarity of the BoJ’s position on ETFs, though, was not matched by its other announcements on Wednesday.

    “Markets seem a bit confused . . . and rightly so,” said James Athey at Aberdeen Asset Management. “The Bank has effectively told markets that it has a Royal Flush and the markets are questioning [BoJ governor Haruhiko] Kuroda’s poker face.”