A WSJ AsiaLinks email alert contained the following figures, explaining briefly where the action is:
Over the past six years, global futures trading on the world’s exchanges has grown nearly 30% a year, expanding the total derivatives market to about $500 trillion — four times the value of all publicly traded stocks and bonds. As a result, the Chicago Mercantile Exchange surpassed the New York Stock Exchange in market value in 2003. [WSJ: Derivatives Explosion Spurs Exchange Consolidation]
Regarding forex:
Based on estimates of the exchange’s market share, the total position of Japanese individual investors is about $19.15 billion, compared with a record $19.07 billion of bets by traders on Chicago’s market. [Bloomberg: Tokyo Mom and Pop Traders Pass Chicago in Yen Sales]
Japan has been noticeably quiet in derivatives; however, there appears to be some momentum with a recent Nomura (NMR) (JP: 8604) alliance with Australia’s Macquarie — not a bad partner to have. The leading brokerages/i-banks are obviously aware of the money to be made in derivatives and certainly don’t want to miss out any further, thus recent news of efforts to expand trading and products. Keep an eye on the Osaka Exchange (JP/Hercules 8697) and possible IPOs or M&A among Tokyo-based exchanges.
Our stance on the yen carry trade remains that it will continue over the near-term with possible yen strength beginning in autumn, but unlikely to be significant/meaningful until the BoJ’s target reaches 1.5%, from next spring, at the earliest. We don’t rule out the possibility of event-driven volatility leading to a spike in the yen. Even in this case however, the size of Japanese retail bets and hunger for yield, could limit and counteract any upside move. Still, beware of so-called “lemmings” or “herd” reactions, as there have been quick double-digit moves in recent history.
Comments are closed.