Alarm bells sounded across US and Japanese equities to begin the week, however, fund selectors viewed the flash correction as a technical reset rather than a fundamental course change.
After falling last Friday on a below-forecast US non-farm payroll print, the S&P 500 and Nasdaq 100 both dropped over 3% on Monday, with many attributing this to a mixture of recession fears and western investors having to divest to cover margin calls on Japanese yen carry trades.
Japanese equities collapsed in even more dramatic fashion, with the Nikkei 225 and TOPIX shedding over 12% apiece on Monday – marking their worst session in 37 years – triggering circuit breakers to temporarily halt trading in Tokyo.
The sell-off followed the Bank of Japan (BoJ) hiking its key policy rate to 0.25%, its second rate cut this year after maintaining a negative interest policy (NIRP) regime since April 2007.
The move sparked fears that further yen appreciation would harm the country’s exporters and those with overseas earnings, after the currency appreciated almost 10% against the US dollar in the month to 5 August.
Responding, Yves Bonzon, CIO at Julius Baer, said the corrections were technical rather than fundamental in nature, with the yen being brought off historic lows and earnings remaining resilient in the US. However, he said predictions of five rate cuts by the Federal Reserve before the end of the year are unlikely to materialise.
Nathan Sweeney, CIO at Marlborough, said the prospect of some Fed rate cuts on the horizon increases the appeal of government bonds and US equities outside of large cap tech.
Wayne Nutland, multi-asset investment manager at Skerritts, added team has changed from underweight to neutral on high-yield credit as spreads widened in recent days.
ETFs underlying new offerings
Further evidencing ETFs’ status as a must-have tool for implementation, legacy manager Rothschild & Co Asset Management launched a three-strong fund range focusing on ETFs.
The funds offer target moderate, balanced and dynamic risk profiles, are benchmarked against MSCI indices and will invest in equity, bond and money market ETFs.
Elsewhere, Allfunds announced the launch of an exchange-traded product (ETP) platform targeting distribution channels where ETPs are the preferred vehicle.
A new chapter for ETF Stream
ETF Stream promoted Theo Andrew to editor following the departure of Tom Eckett.
Andrew will be responsible for leading the publication’s editorial direction across its online news and analysis, monthly ETF Insider magazine, reports and events.
He joined ETF Stream as a senior reporter in September 2021 after spending more than four years in reporter roles across Citywire, PensionsAge and SportBusiness.
