Probing the Carry Trade
Asia's downward spiral continued Monday amid fresh debate in the region over the cause of the recent selloff. It's a classic chicken-and-egg debate: Did the rising cost of the yen carry trade set off the panic-selling in China, or did the Chinese meltdown set off the unwinding of the yen carry trade?
Which came first is important, market-watchers say, because finding the catalyst may be the answer to stemming the red-digit bloodbath affecting world markets.
In what some are seeing as a new "Asian contagion," investors in Asian ETFs fared the worst of all last week. The iShares FTSE/Xinhua China 25 Index (FXI) plunged nearly 10%, while the iShares Singapore Index (EWS), the iShares Malaysia Index (EWM) and the iShares MSCI Emerging Market Index (EEM) -- which gained 22% last year -- all suffered similarly. (In recent trading Monday, the ETFs were down between 0.9% and 5.7%.)
Many hoped that the region would reverse last week's losses. But overnight Monday, the Nikkei 225 lost 3.34%, while Hong Kong's Hang Seng plummeted 4% and the Shanghai Composite Index lost 1.6%. But it was the Shanghai market's B-share index that set off another round of panic selling, after it plunged 6.9%. So-called B-shares are denominated in foreign currencies and are thus more relevant to the carry-trade conversation than shares on the mainland, which trade only in the local currency.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV