Japan and Korea have been by far the weakest markets since the war in Iran started. Nikkei is down 8% this month - but as any day trader or amateur market technician would tell you, so far not even a correction in an uptrend.
Kospi 200 is a meatier 20% this month, which meets the definition of a bear market - but again still in an uptrend.
No prizes for guessing the catalyst. Asian LNG prices have doubled in the last two days.
Kospi VIX is now at 80, which is a level ABOVE Covid shock levels, and in line with GFC levels. No doubt some issues with autocallables are at play here, but that is a very elevated level.
To me it still looks more like a degrossing or margin call issue. Popular/momentum longs get cut, and popular/momentum shorts get bought. With Korea, the big driver has been memory prices. No weakness yet.
In Japan, at least for me, the driver has been a weak yen and rising yields. Yen is still weak.
And 10 year JGBs are still in rising trend.
What you could argue is that Japanese and Korean equities are indicating that the Iran war is going to drag on, and energy prices are going to sky rocket back to 2022 levels. That could be true - but when I look at Israeli equities - they seem to imply that the war is going pretty well.
Israeli shekel is also very strong. In the fog of war, these seem pretty good indicators, as I strongly suspect Israeli knowledge of the war far outpaces knowledge anywhere else.
One lead indicator I have liked for a while is the relative performance of Japanese banks. Again price action here looks corrective more than anything else. And this indicator has regular corrective moves.
Fog of war is the correct term here. But war tends to be inflationary - so not necessarily a negative for what I am positioned for. Also AI which is a big driver of markets can be seen as strategic military asset - so that driver of the market would be unchanged, which also positive for Korea.
For my autocallable obsessed friends out there (you know who you are) - Nikkei divided futures have barely fallen. A real autocallable crisis needs these to tank.
Right now the risk is the war gets worse but there is a risk it gets better too. The Trump game plan is to obviously keep decapitating Iranian leadership until he gets someone who will play ball.
Looking at markets - degrossing is killing winning trades this year. But I dont see any trend changes.
