A note from JPM analysts says a shock market meltdown could be a scenario that happens again.
“Many market participants are dismissing the recent blowup of various crowded trades as a fluke or flash cash, but we see it as more of a dress rehearsal for what’s to come”
JP Morgan are referring to early August, when the Nikkei collapsed 12.4% in a single day, its worst day since “Black Monday” in 1987. The domino effect triggered global sell offs. The Japanese collapse, the analysts say, was triggered by the small Bank of Japan rate hike and the unwinding of the yen “carry trade.” JPM says that while carry trades could become a problem again but they shouldn’t trigger another market meltdown:
- “Looking ahead, until the Sharpe ratios on the carry trades get high, we would not think these would be the catalyst for the next major correction”
JPMorgan said, though, that concerns about an economic slowdown could resurface:
- “Instead, we see the reemergence growth risk as the likely trigger.”
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Well, yeah, a growth concern was a factor in the sell off too.
