Japan’s Stock Investors Hedge Against More Drops as War Persists

Investors in Japanese equities are hedging against more downside as the war in the Middle East drags on.

The Topix index has shed more than 7% since the US-Israeli attack on Iran, making it one of the worst hit markets in the world. Since the start of the war in late February, Japan’s stock market has been on a roller coaster, lurching between sharp gains and losses. Stocks surged again on Wednesday, closing 2.6% higher, after signs the US was trying to de-escalate the conflict.

Amid the volatility, investors have been using short selling and options to position for sharp drops. Here are three charts showing bearish signs in the market.

Short-Selling Ratio

The ratio of short-selling to overall daily trading has increased noticeably with the 20-day moving average rising to around 40%, the highest in almost a year.

Hiroki Takei, a strategist at Resona Holdings, said short covering usually creates future buying pressure, but with the level of uncertainty remaining high, he thinks it is unlikely it will “drive a significant rally in Japanese equities.”

Put Demand

Demand has jumped for index put options — contracts that get more valuable when prices fall. Particularly those deep out-of-the-money have seen a lot of demand, suggesting that investors are positioning for sharp falls. Implied volatility for one-month, five-delta Nikkei 225 index put options has surged to around 60%, up from around 40% before the Iran attack.

Margin Sell

Margin selling positions have increased two weeks in a row as of March 19, according to data released by the TSE on Tuesday. That suggests retail investors are starting to turn bearish as the war continues.

This article was generated from an automated news agency feed without modifications to text.

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