Stock Supply/demand Following Earthquake
Buying, selling pressure satisfied by foreign inflows, selling futures to unwind arbitrage positions
April 13, 2011
Summary
◆The setback in equity markets immediately following the Great East Japan Earthquake can probably be explained by (1) the selling of index futures by foreign investors leading to an unwinding of index arbitrage positions and (2) early selling to cut losses on long positions.
◆While foreign investors were net buyers in cash trading to a significant degree, both the amount bought and sold were nearly double that of normal trading activity. To some extent, this could indicate that both buying and selling appetites had been reasonably satisfied. Investment trusts and other vehicles saw inflows of money.
◆Overseas investors were net sellers of Nikkei 225 futures before the earthquake, which may have reflected concerns about geopolitical risks. This investor group became major net sellers of TOPIX futures, as well, right after the earthquake struck.
◆We think shorter trading cycles were one reason why retail investors did not exhibit a clear trend towards net buying. Trust banks shifted to net buying of Japanese equities as share prices fell below levels from about six months ago.
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