Japan-focused hedge funds erased their losses from Monday’s trading turmoil, posting their best ever single-day performance, according to Goldman Sachs.
The Japan manager group rose 3.6% intraday on Tuesday amid a global market rebound, reversing the setback seen a day before when such funds saw their largest single day drawdown, data compiled by Goldman’s prime brokerage showed in a report.
Despite the MSCI Japan Index slumping 12% on Monday, Japanese equities in the Goldman prime book were only marginally net sold, indicating that hedge funds weren’t behind the selling flows, it said.
Hedge funds added risk in Japan with short sells exceeding long buys almost two to one, it added. Asia-focused managers are also seeing a partial recovery, rising 1.5% after a 2.4% drawdown the previous day.
Japan’s Topix index swung between gains and losses as banks provided support on an increase in long-term bond yields. Exporters such as automakers fell amid lingering concerns over the US economy.
The Topix index climbed as much as 1.4% after falling 1.7% earlier, while the Nikkei 225 Stock Average slid 1.3%. The S&P 500 and Nasdaq 100 rose overnight with both climbing 1% as buyers scooped up bargains.
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Investors continue to be on edge amid volatile conditions that sent the equity gauges into bear markets on Monday. The Nikkei 225 and the Topix are down about 18% from highs hit last month, after sliding into a bear market on Aug 5 when losses exceeded 20%. The Nikkei’s implied volatility touched its highest level since 2008 at the start of the week.
“Volatility has forced institutional investors to reduce risk assets,” said Mitsushige Akino, president of Ichiyoshi Asset Management. “Stocks are still in the midst of wild swings — volatility is high due to uncertainty in the outlook.”
The government and the Bank of Japan agreed to closely monitor developments in the economy and financial markets with a sense of urgency, Vice Finance Minister for International Affairs Atsushi Mimura said after a meeting between the Finance Ministry, the BOJ and the Financial Services Agency.
Chart: Bloomberg
