Japan hedge funds stay optimistic in roller-coaster ride

The ongoing roller-coaster ride of Japanese stock exchanges has spurred hedge fund managers to make swift adjustments to their portfolios. But despite the severity of last Friday’s disaster, they predict that market recovery is on the horizon.

Panic-selling led the country’s stock markets to fall precariously on Tuesday in plunges not seen since the financial crisis of 1987. Hedge funds are believed to be behind the heavy sale of Nikkei futures, which pushed down share prices.

After yesterday’s morning bell, a market rebound was led by bargain hunters, including hedgies seeking to cover short positions after unloading their futures positions the previous day.

One Tokyo-based hedge fund manager acknowledges that trading is “obviously difficult”, particularly given the stream of negative news being broadcast worldwide on the situation.

Amid the market upheaval, the best tactic is not to panic, says Taisuke Nishikawa of Japan-focused Riverwest Advisors in Hong Kong, who foresees recovery in Japan’s equity market in the near future, given the substantial recovery efforts by governments on a national and international scale.

He predicts that Japan’s production and consumption industries will help to lead market recovery, against a backdrop of high-quality stocks priced at attractive levels.

In the near term, market volatility will remain high, cautions Akira Yaku, chief executive of Singapore-based Alithion Capital Management, which runs a Japan equity multi-strategy fund.

As a result, “control of correlation risk and delta position will be very important”. He anticipates a market recovery in the “not-so-distant future” based on his prior experience as a bank proprietary desk trader during the 1995 Kobe earthquake.