Global market rout has more to do with end of cheap funding than U.S. economy

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U.S. data doesn’t support scale of market meltdown: analysts

A meltdown in world equity markets in recent days is more reflective of a wind-down of carry trades used by investors to juice their bets than a hard and fast shift in the U.S. economic outlook, analysts say.

“In our assessment a lot of this has been down to position capitulation as a number of macro funds have been caught the wrong way around on a trade, and stops have been triggered, initially starting with FX and the Japanese yen,” said Mark Dowding, chief investment officer at BlueBay Asset Management, referring to pre-determined levels that trigger buying or selling.

Bank for International Settlements data suggests cross-border yen borrowing has increased by $742 billion since the end of 2021, the bank noted. Banks give hedge funds leverage, essentially a loan to fund investing, which amplifies hedge fund returns but can also increase losses.

 

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