The Bull

Monday 01

September, 2014 9:10 PM

Industry Chart

TheBull PREMIUM

  • Trading
  • &
  • Technical
  • Analysis

Is the Short Yen / Long Japanese Equities Trade Over?

Is the Short Yen / Long Japanese Equities Trade Over?

By Expert Panel 27.05.2013


In volatility we haven’t seen since the Fukushima disaster, Japanese shares dropped by 7% on Thursday before bouncing off of those lows later in the day.  Ouch!

The ostensible cause?  Fed Chairman Ben Bernanke indicated that QE Infinity might—just might—come to end if U.S. economic data improve, and China’s PMI came in lower than expected.  A more likely explanation is the recent surge in Japanese government bond yields; the 10-year yield briefly jumped above 1% before falling back into the 80-basis-range.

Japanese stocks were definitely due for a breather; the Nikkei had been up by more than 50% year to date.  But does Thursday’s action point to something bigger?  Could it be that the short yen / long Japanese equities trade is over?

We’ll see. I expect that the yen still has much further to fall, and this may or may not mean a short-term rally in Japanese equities.

The real trading opportunity here, however, is in Japanese bonds.  This is a trade where the risk and potential reward are asymmetric; your downside is modest while your upside is enormous.

Japanese 10-year yields cannot go much lower than current levels.  At time of writing, the yield was 0.86%.  The all-time low was hit last month at just under 0.50%.

Could yields retest those old lows? Of course, anything is possible.  But given the scale of the money printing involved, I wouldn’t bet on it.

A far more likely outcome is something akin to the Eurozone crisis whereby the bond vigilantes mercilessly punished the countries with high budget deficits and debt loads.  Japan’s total debt is roughly 100 percentage points of GDP higher than that of Italy and its yearly budget deficit is substantially bigger, yet it pays a yield that is more than 75% lower.  Given that Japan is no longer a high-savings-rate country, they cannot depend on their citizens to bail them out this time.  And if the Bank of Japan steps in too aggressively, they run the risk of undermining confidence in the yen and turning its orderly decline into a rout…which would almost certainly cause yields on Japan’s debt to soar.

To take advantage of this, investors may opt to short Japanese debt.  The easiest way to do this is via the Powershares DB 3x Inverse Jap Gov Bond ETN ($JGBD).  Be careful here because this is a leveraged ETN that also happens to be somewhat thinly traded.

Give this trade a little room to run.  I would use a stop loss near the old lows $17.50.  Your risk here is manageable.  If I’m wrong, you have lost roughly 8%.  But if I’m right, and the bond vigilantes finally turn on Japan, we might be able to double our money in a matter of weeks or months.

Disclosures: Sizemore Capital is long JGBD. 

Charles Lewis Sizemore, CFA is the founder and editor of The Sizemore Investment Letter, a monthly newsletter dedicated to finding superior investments backed by powerful macro trends. He also serves as the Chief Investment Officer of Sizemore Capital Management LLC, a registered investment advisor.

 

Click on the links below to read other articles from this week's newsletter

1. Buy Global Equities - Is Now The Time?: Plenty of gains are ahead if the Australian...

2. The Great Bank Bubble of 2013: How sustainable are bank dividends?...

3. 18 Share Tips - 27 May 2013: 18 Share Tips to BUY, SELL & HOLD from...

4. Bulls Ready to Flood Back Into Gold and Silver: Silver's current secular bull was born near $4...

5. A Trader's Daily Routine: My personal trading takes approximately one to...

6. Identifying Market Trends: Learning how to identify the trend should be...

7. Is the Short Yen / Long Japanese Equities Trade Over?: The Nikkei had been up by more than 50% year to...

8. Top 10 shorted stocks: Each day we feature the top 10 shorted stocks...

9. Stocks on a roll: ASX rolling 52-week highs for the previous...

10. Stocks on the slide: ASX rolling 52-week lows for the previous...

 


Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.

 



FROM THE NEWSLETTER

Money or happiness?

The problem with money is that it can only buy... More

Global 'roadmap' shows where to put roads without costing the earth

The International Energy Agency (IEA) predicts... More

Nine and Fairfax Media streaming towards a full tango?

Until the media ownership laws can be repealed,... More

Top 10 shorted stocks

Each week we feature the top 10 shorted stocks... More



WHAT’S ON THIS WEEK

week 5 September 2014
    • 01
    • RP Data RP Data Rismark Home Value Index for August | 1:01 AM
    • TD Securities TD Securities-Melbourne Institute inflation gauge for August | 6:08 AM
    • PMI Australian Industry Group performance of manufacturing (PMI) index for August | 6:10 AM
    • ABS Australian Bureau of Statistics (ABS) business indicators for June quarter | 6:11 AM
    • RBA Reserve Bank of Australia (RBA) index of commodity prices for August | 6:11 AM
    • 02
    • ABS ABS Building approvals for July | 2:17 AM
    • Dun and Bradstreet Dun and Bradstreet business expectations survey | 4:59 AM
    • ANZ ANZ-Roy Morgan weekly consumer confidence survey | 5:41 AM
    • ABS ABS Balance of Payments and International Investment Position for the June quarter | 6:08 AM
    • RBA Reserve Bank of Australia monthly board meeting and interest rate decision | 6:08 AM
    • ANZ ANZ chairman David Gonski to address an Australian British Chamber of Commerce lunch | 6:09 AM
    • ABS ABS government finance statistics for June quarter | 6:09 AM
    • 03
    • Employee Fraud and Theft seminar Employee Fraud and Theft seminar: Jeff Smith and Stuart Snaith from Regents Risk Advisory talking about how companies can prevent, investigate and recover losses from fraud | 2:18 AM
    • RBA RBA governor Glenn Stevens delivers keynote address at CEDA event | 2:18 AM
    • Paydirt Africa Down Under conference Paydirt Africa Down Under conference, day one of three | 2:19 AM
    • AOFM AOFM to issue $600 million of April 21, 2026 Treasury bonds | 2:23 AM
    • ABS ABS national accounts, including gross domestic product for June quarter | 4:58 AM
    • PSI Australian Industry Group Australian Performance of Services Index (PSI) for August | 5:41 AM
    • Kim Williams Book launch by former New Corp Australia CEO Kim Williams | 6:46 AM
    • 04
    • ABS ABS overseas arrivals and departures for July | 5:35 AM
    • ABS ABS retail trade for July | 5:40 AM
    • AOFM AOFM to issue $500 million of Treasury notes, maturing on January 23, 2015 | 5:42 AM
    • ABS ABS international trade in goods and services for July | 5:42 AM
    • Paydirt Africa Down Under conference Paydirt Africa Down Under conference, day two of three | 6:05 AM
    • CEDA CEDA Economic Prosperity event, speakers include Flinders University vice chancellor Michael Barber and UK Parliamentary Office of Science and Technology director Chris Tyler | 6:05 AM
    • 05
    • PCI Australian Industry Group/Housing Industry Association performance of construction index (PCI) for August | 6:06 AM
    • Paydirt Africa Down Under conference Paydirt Africa Down Under conference, day three of three | 6:07 AM
    • AOFM AOFM to issue $1.5 billion of October 21, 2019 Treasury bonds | 6:10 AM

TheBull.com.au

TheBull.com.au

TheBull PREMIUM article search

STOCK QUOTE

Don't know the company code? Click here



Featured Comment

The housing sector has cooled slightly this year from a strong base. But the outlook remains positive, with interest rates expected to remain on hold this year and probably well into 2015. The risks are on the upside, with housing potentially doing better

Time to take profits in this bank?

Broker buys

  • ASX Code
  • Company
  • Broker
  • IREIressWilson HTM
  • RIORio TintoWilson HTM
  • CCPCredit CorpPhilip Capital
  • COECooper EnergyPhilip Capital
  • TLSTelstraMorgans CIMB
  • NABNAB LtdMorgans CIMB

Broker sells

  • ASX Code
  • Company
  • Broker
  • CGFChallengerWilson HTM
  • DLXDuluxWilson HTM
  • SMXSMS TechPhilip Capital
  • OKNOaktonPhilip Capital
  • SAISAI GlobalMorgans CIMB
  • EGPEchoMorgans CIMB

Central Banks Rates

  • RBA2.50%
  • FED0.25%
  • BOE0.50%
  • BOC1.00%
  • RBNZ3.25%
  • ECB0.15%
  • SNB0.00%
  • BOJ0.10%

Upcoming dividends

  • ASX Code
  • Company, Div., Franking
  • Ex-Div.
  • IBCIronbark Capital Ltd, 2c, 100%15/12/14
  • CYACentury Aus Inv Ltd, 2c, 100%10/09/14
  • MHIMerchant House Intl Ltd, 0.5c, 0%20/08/14
  • WICWestoz Inv Co Ltd, 4.5c, 100%07/08/14
  • OZGOzgrowth Limited , 0.75c, 100%07/08/14
  • SGTSingapore Telecom Ltd, 8.6c, 0%01/08/14
  • CUPCountplus Limited, 3c, 100%28/07/14

Eight brokers like these stocks

  • ASX Code
  • Company Name
  • Consensus Target
  • DOWDowner EDI Limited$5.78
  • FMGFortescue Metals Grp Ltd$6.89
  • ORAOrora Limited$1.51
  • RIORio Tinto Limited$81.22
  • CSLCSL Limited$73.30

Upcoming Floats

  • ASX Code
  • Company Name
  • Float Date
  • GVFGlobal Value Fund Ltd14/07/14
  • TPN3P Learning Ltd16/07/14
  • DXBDimerix Bioscience Ltd28/07/14
  • BALBellamys Aus Ltd30/07/14
  • ECO8Common Ltd22/08/14

PLEASE SUPPORT OUR SPONSORS, AUSTRALIA'S LEADING BROKERS:



© Copyright The Compare Group Pty Ltd. All rights reserved.