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 Quote) plunged nearly 10%, while the iShares Singapore Index (EWS Quote), the iShares Malaysia Index (EWM Quote) and the iShares MSCI Emerging Market Index (EEM Quote) -- which gained 22% last year -- all suffered similarly. (In recent trading Monday, the ETFs were down between 0.9% and 5.7%.) ...