Large volumes of positions in stocks, foreign exchange and commodity markets have been funded in “zero cost” Japanese yen. Now, with the yen rising and liquidity drying up, emerging stock markets are being particularly hard hit, according to a report by London-based Lombard Street Research.
China’s unexpected interestrate rise at the end of April shows its authorities are serious about tightening.
“Having failed to put an end to the local authorities’ investment craze and faced with a massive bill for much more expensive raw materials, Beijing will have to step on the brakes harder this time around,” the report says.
Given the scale of financial speculation in commodity markets and the chance that the speculators will be the first to bail out, grossly overvalued metals prices and probably oil, too, likely will begin falling, say Lombard Street’s analysts.
“These two points together mean the game will soon be up for most of the emerging stock markets,” the report says.