Financial Experts Highlight High-Performing Small and Mid-Cap Stocks Defying Historic Market Crash

■ Yen Selling Positions Unwound, but the Yen’s Influence Remains Strong

Let’s take a look at the yen positions of speculators (hedge funds) in the currency futures market of the Chicago Mercantile Exchange, as disclosed by the U.S. Commodity Futures Trading Commission (CFTC)【Table 1】. The fact that these positions have long been in the negative indicates that speculators in the currency futures market were heavily skewed towards “yen selling positions.”

However, after the Bank of Japan’s meeting, these yen selling positions rapidly decreased. By August 13th, they had finally shifted to “yen buying positions.” This is the first time since March 8, 2021, that positions have shifted to yen buying. It shows that speculators quickly unwound the yen selling positions they had accumulated over time.

Previously, Japanese stocks had been rising significantly due to improvements in corporate performance driven by the weak yen. This sudden and panicked yen appreciation led to the market crash. Even in the current market, the strong correlation between “weak yen, strong stocks” or “strong yen, weak stocks” remains evident, and the yen’s exchange rate will likely continue to have a significant impact on Japanese stocks going forward.

 

The Market Understands This is Different from Past Shocks.

The rapid yen appreciation and stock decline caused by the unwinding of the “yen carry trade” led to a sharp rise in volatility—the measure of market price fluctuations—in both Japan and the U.S., as institutional investors sought to hedge against further declines.

When volatility spikes, a vicious cycle can temporarily occur where stocks are sold off mechanically, causing volatility to rise even further (volatility increases → stock prices fall → volatility increases → stock prices fall). However, these movements in both Japan and the U.S. quickly subsided.

The crash on August 5th felt almost apocalyptic, but the market seemed to calmly recognize that this was different from past incidents that were dubbed with names like “Somekind of Shock.” The market appeared to act with a level-headed understanding of the situation.

 

Individual Stocks Also Rebound Significantly After the Decline

Japan’s stock market experienced significant turbulence in August. The Nikkei 225, which closed at 39,101 yen at the end of July, fell to a low of 31,156 yen on August 5th, but by August 16th, it had recovered to 38,062 yen.

Despite such a dramatic drawdown, the current level is 97.3 when compared to the end of July, which is set at 100. The sense of “back to normal” is quite strong. The same can be said for individual stocks.

During the sharp decline in August, 1,067 out of 1,646 Prime-listed stocks (65% of the total) updated their year-to-date lows. Let’s take a look at the performance of the top 10 stocks by market capitalization among them【Table 2】.

Even Toyota Motor Corporation, which updated its all-time high in late March, saw its year-to-date low updated in August. In terms of maximum drawdown (decline rate) from the end of July, Toyota experienced a drop of -26%, while Mitsui & Co. saw a decline of -32%, a truly chaotic situation.

However, when looking at the “rebound strength” listed alongside these figures, it becomes clear that each stock recorded a rebound nearly equivalent to the drop.

In other words, what occurred during this crash and subsequent sharp rebound can likely be identified as a phenomenon known as “return reversal,” where buying occurs during a market downturn.