Volumes transacted in the Japanese stock markets continued to run hot into June, but, according to FT data, activity has halved since momentum pulled up sharply in at the beginning of the week of 10 June.
Looking at the index, the eye is drawn to the last two weeks of May. On 21 May, the Nikkei Index was 15,381. It then dropped 1,218 points in the penultimate week (7.9%) and 880 points (6.2%) in the final week of May, as investor enthusiasm for “Abenomics” faded.
During June, the index continued to fall, to 12,445 on 10 June, before starting a recovery that has brought it close to 14,000 today.
June turnover falls
Total market turnover was US$693 billion in June 2013. That is a 30% fall from May 2013, although more than double the US$303 billion transacted in June 2012.
According to data from Thomson Reuters Equity Market Share Reporter, Japan Exchange (JPX), the entity resulting from the 2012 merger of the Tokyo and Osaka Stock Exchanges, accounted for US$659.3 billion of turnover. Tokyo’s market share was 87.8% and Osaka’s 7%. In April, that pair recorded market share of 89.8% and 6.7% respectively.
With lower overall turnover, the alternative venues slightly improved their market share in June. SBI JapanNext’s portion rose to 3.22% in June from 2.74% in May. Chi-X Japan’s market share was 1.83% in June against, 1.7% in May, down from 1.9%.
Equity turnover rose in Japan during May 2013 to US$979 billion for the month, compared to US$854 billion during April, with Tokyo and Osaka dominating alternative venues. One year ago, in May 2012, total turnover within Japan’s markets was US$305 billion.
The market fall during the last two weeks of May was on the back of a sustained high level of turnover that had continued to build up in Japan throughout the year. If one believes the hypothesis that sudden market plunges (or leaps) are more reliable if they are undertaken within an environment of heavy volumes, then that validates the Nikkei’s move in that late May fortnight.
Mystery of Japan’s winners and losers
Talking to industry participants as the Japanese markets surged during the spring, a theory was presented that the buyers who had originally driven market impetus upwards at the end of 2013 were foreign institutions and funds. Domestic Japanese institutions only came back in as buyers towards the end of the upswing, as the market approached its May peak. So, have any investors been caught having gone long at the top of the market?
“There is no clear answer from the street at the moment,” says Stephane Loiseau, deputy global head of execution at Societe Generale. “Could it be the same who bought earlier on? Not so sure. The real challenge is the low volume environment post end of May. As market volumes have collapsed, it now doesn’t take a lot of selling to drive the market down.”
It might be those foreign institutions who have stayed in as the market has fallen. However, equally plausible, foreign investors, along with hedge funds, may have headed to the exits, leaving the Japanese institutions holding losses.
Looking at the results of Japanese hedge funds published by Eurekahedge, Japanese hedge fund strategies were down just 0.51% in May (having been up 4% and 6% in March and April, and 17% for the year-to-date), so it does not look as if they were caught holding on to long positions.