oussama94
05-28-2017, 18:41
Traders exposed to Japanese equities also need to be aware of the developments
that are occurring in the U.S. dollar and how they affect the
Nikkei rally. Japan has recently come out of 10 years of stagnation. During
this time, U.S. mutual funds and hedge funds were grossly underweight
Japanese equities. When the economy began to rebound, these
funds rushed in to make changes to their portfolios for fear of missing
a great opportunity to take advantage of Japan’s recovery. Hedge funds
borrowed a lot of dollars in order to pay for increased exposure, but the
problem was that their borrowings are very sensitive to U.S. interest rates
and the Federal Reserve’s monetary policy tightening cycle. Increased borrowing
costs for the dollar could derail the Nikkei’s rally because higher
rates will raise the dollar’s financing costs. Yet with the huge current account
deficit, the Fed might need to continue raising rates to increase the
attractiveness of dollar-denominated assets. Therefore,hikes coupled with slowing growth in Japan may make it less profitable
for funds to be overleveraged and overly exposed to Japanese stocks. As a
result, how the U.S. dollar moves also plays a role in the future direction of
the Nikkei.
that are occurring in the U.S. dollar and how they affect the
Nikkei rally. Japan has recently come out of 10 years of stagnation. During
this time, U.S. mutual funds and hedge funds were grossly underweight
Japanese equities. When the economy began to rebound, these
funds rushed in to make changes to their portfolios for fear of missing
a great opportunity to take advantage of Japan’s recovery. Hedge funds
borrowed a lot of dollars in order to pay for increased exposure, but the
problem was that their borrowings are very sensitive to U.S. interest rates
and the Federal Reserve’s monetary policy tightening cycle. Increased borrowing
costs for the dollar could derail the Nikkei’s rally because higher
rates will raise the dollar’s financing costs. Yet with the huge current account
deficit, the Fed might need to continue raising rates to increase the
attractiveness of dollar-denominated assets. Therefore,hikes coupled with slowing growth in Japan may make it less profitable
for funds to be overleveraged and overly exposed to Japanese stocks. As a
result, how the U.S. dollar moves also plays a role in the future direction of
the Nikkei.