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While Friday’s weaker-than-expected US jobs data was the catalyst for the market sell-off, with Japan’s blue-chip Nikkei index yesterday suffering its biggest one-day rout since the 1987 Black Monday selloff, the employment report alone wasn’t weak enough to be the main driver of such violent moves, they added.
While exact numbers and the specific positioning shifts underlying the moves are hard to come by, analysts suspected that crowded positions in US tech stocks, funded by carry trades, explain why they are suffering the most. “It’s a yen-funded carry unwind and Japanese stock unwind,” said Tim Graf, head of macro strategy for Europe at State Street Global Markets. “Our positioning metrics show investors overweight Japanese stocks. They were underweight yen. They’re no longer underweight yen.”
Banks give hedge funds leverage, essentially a loan to fund investing, which amplifies hedge fund returns but can also increase losses.