Is Global Stockmarket Turbulence Over?

Global Stockmarket has somewhat stabilised and even recovered significantly for the past few days. Is this a signal of the end of the turbulence that was caused by the series of events unfold recently, particularly so for the winding up position of Yen carry trade? A carry trade is when an investor borrows one currency and invest in another high yielding currency or assets. For the last decade or so, the Yen has become the ideal target for carry trade because of Japan's zero interest rate policy to move its economy out of a deflationary mode. This has fueled the huge liquidity that has poured into emerging markets like China and India, and to a certain degree enable US to fund its large current account deficits. According to estimates, yen carry trade could be as much as USD$1 trillion! Late last year, the scenario has somewhat changed as Japan decided to end its decade-long zero-rate policy in view of it's improved economy by raising its interest rates. Japan is widely expected to further increase interest rates as its economy continue to recover. Coupled with the fact that US is expected to reduce interest rates before the end of the year due to reduced threat of inflationary pressure, the narrowing of valuation gap will potentially cause more unwinding of yen carry trade. When this happens, funds will be withdrawn from worldwide markets, thereby further causing instability.

In conclusion, while global markets have somewhat stabilised and recovered for the past few days, the impending turbulence may not be over as yet. So do watch out for such events to potentially unfold again!