Hedge funds engaged in their most aggressive sell-off of Japanese stocks in over five years during last week’s market downturn, according to a recent note from Goldman Sachs. The sell-off was primarily concentrated in macro products, reflecting heightened investor concerns.
The mass exodus from Japanese equities occurred as both the Nikkei 225 and TOPIX indexes plummeted by more than 12% last Monday, officially pushing the market into bear territory. The steep decline was driven by fears of rising Japanese interest rates and potential inflation in the United States.
A stronger yen further exacerbated the situation, placing additional pressure on Japan’s export-driven companies.
Goldman Sachs noted that hedge funds predominantly offloaded stocks in the industrial, financial, and healthcare sectors. However, there was simultaneous buying activity in real estate, technology, and consumer discretionary sectors, signaling a selective approach amid the broader sell-off.
Despite the sharp early-week losses, Japanese stocks made a significant recovery later in the week, clawing back much of the earlier decline. This rebound was partially fueled by reassurances from Bank of Japan officials, who indicated that interest rates would not be raised amid ongoing market volatility. Additionally, bargain hunting in large-cap Japanese stocks contributed to the market’s recovery.
Nevertheless, investor sentiment toward Japan remains cautious, especially following the Bank of Japan’s decision in late July to raise interest rates and its warning that there is no upper limit to potential rate hikes this year.
Future monetary policy decisions will likely hinge on the performance of Japan’s economy, with the upcoming release of second-quarter GDP data expected to provide further insights.
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