Analysis-Aftershocks of carry trade at heart of market rout could still have reverberations

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Investors said the aftershocks of a massive carry trade that has reverberated through global financial markets wasn't done yet, with more unwinding in the...

NEW YORK - Investors said the aftershocks of a massive carry trade that has reverberated through global financial markets wasn't done yet, with more unwinding in the days ahead raising the risk of shake-outs to other assets.

The complete unwind of this yen-funded trade is likely to take days, potentially extending the market rout, Zhe said. Calculations made by hedge fund research firm PivotalPath show that hedge fund strategies most affected by a yen rally are global macro quantitative and managed futures, as they have short exposure to the Japanese currency. A spike in the yen this month indicates a loss of between 1.5% and 2.5% in August for those funds' indexes, according to the firm's exposure model.

“There was a certain ‘get me out’ quality to the pre-market and opening trades that since have subsided," said Sosnick. "Most of the people haven't unwound anything yet because they think it's just a regular correction," Currency Research Associates' Lindahl said. "This is a serious thing, it’s not just the regular correction. You don't have gap openings for 4% or 5% in major indexes, and then they recover. There's a serious collapse that's coming."

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