THE WORLD'S MOST DANGEROUS TRADE IS GETTING EVEN MORE CROWDED.
Leveraged funds are now holding their largest short position in the Japanese yen since 2017. They're borrowing ultra-cheap yen to buy higher-yielding assets, particularly U.S. technology stocks, making the yen carry trade more crowded than it has been in years. The risk is what happens if the yen suddenly strengthens. A sharper yen forces investors to buy back the currency to repay their loans, triggering rapid deleveraging across global markets. We've seen this before. In August 2024, the yen surged roughly 14% against the U.S. dollar, sparking a violent unwind of carry trades. More than $6 trillion was erased from global equity markets, and panic selling reached levels not seen since the COVID crash. Today, speculative positioning is even more extreme. That doesn't guarantee another unwind—but it does mean the market is more vulnerable if the yen stages another sharp rally. Source: The Macro Paper
South Korea's benchmark index has seen annualized volatility surge above 60%, nearly twice that of Japan's Nikkei 225.
The Korea Exchange has already triggered emergency circuit breakers nine times this year—compared with just 15 over the previous 26 years. The concentration of Samsung Electronics and SK Hynix, which account for more than half the index, combined with a boom in leveraged ETFs, has amplified market swings. Assets in leveraged ETFs have jumped from $5 billion to over $40 billion in six months, with retail investors holding nearly 90% of them. In response, regulators and the central bank have introduced measures including ETF exposure limits and higher trading costs to reduce volatility. Source: Bull Theory
Leverage is unwinding across Asia
The borrowing that fueled this year's rally is now accelerating the selloff. In South Korea, margin debt has fallen by $4 billion since June, while leveraged ETF assets have plunged 70% (from $53 billion to $16 billion). Retail cash set aside for stock purchases has dropped 23%, and many Samsung and SK Hynix investors are now sitting on losses. The deleveraging is spreading across the region, with margin loans also falling sharply in China and Taiwan. As leveraged positions are unwound, forced selling is amplifying market volatility. Source: Global Markets Investor
Japan will use the International Repo Facility in the future to boost the Yen and avoid having to sell U.S. Treasuries
Source: Barchart
South Korea's Stock Market has plunged more than 33% this month
It is on track for its worst month in history, surpassing the October 1997 IMF Crisis (-27%) and the October 2008 Global Financial Crisis (-23%) 📉 📉 Source: Barchart
SOUTH KOREA'S STOCK MARKET JUST HIT THE CIRCUIT BREAKER... AGAIN.
The KOSPI plunged 8%, triggering a market-wide trading halt for the 9th time this year. Roughly ₩500 trillion in market value disappeared in a single session. Three major shocks hit at once: • China's DUV chip breakthrough is raising concerns that South Korea's long-held memory chip advantage could come under pressure. • A US semiconductor selloff, driven by fresh questions around Nvidia's financing structure, spilled into Asia. Samsung and SK Hynix both dropped more than 12–14%. • Iran denied reports of peace talks with the US, reigniting geopolitical fears and pushing investors into risk-off mode. The impact is amplified because Samsung and SK Hynix account for more than half of the KOSPI's market capitalisation. When the chip giants fall, the entire index follows. Adding fuel to the selloff, record retail leverage is forcing liquidations, accelerating the decline and turning a sharp correction into a full-scale market rout. Source: The Macro Paper
Japanese Retail Traders have now built the largest U.S. Dollar short position since the Global Financial Crisis
Source: Barchart
Massive sell-off in Asian Markets this morning (and Korea market was closed)
Over $970 billion has been wiped out from Asian stock markets today. 🇯🇵 Japan: $350B erased (51 trillion yen) 🇨🇳 China: $360B erased (¥2.6 trillion yuan) 🇭🇰 Hong Kong: $110B erased (HK$860 billion) 🇹🇼 Taiwan: $140B erased (NT$4.1 trillion) 🇦🇺 Australia: $10B erased (A$15 billion) Nearly $1 trillion has been wiped out across Asia in a single trading session. Source: Crypto Rover
