Hedge Funds Now Want to Take Profits

The Nikkei is quoting Daiwa research that
estimates their database of some 5,500 hedge
funds around the world had some US$62 billion
invested in Japan at the end of June 2003, versus
total assets of US$675 billion. This compares to
US$34 billion invested at the end of 2002.


In other words, while market and yen
appreciation did appreciate the US dollar value
of these funds during the period, the exposure of
these hedge funds to Japan apparently has risen
to around 9%, versus roughly 5% at the end of
2002. This implies that some US$28 billion of
hedge fund money came into Japan in the first
six months of calendar 2003, or roughly JPY3
trillion. This compares to net foreign buying as
reported by the Tokyo Stock Exchange and the
MOF of only JPY2.3 trillion.


Thus essentially all the foreign buying in the
first half of this year appears to have come from
hedge funds. As these funds often used "long-
short" strategies to short financially weak stocks
while buying financially strong Japanese stocks,
the huge wave of foreign buying during the first
portion of the surprising "bull" market in
Japanese stocks this year may have actually
been the covering of short positions by overseas
hedge funds, particularly in the bank stocks.


Cottailing this buying of course was individual
investors, aggressively day trading the flavor of
the day, to the point that over the last month or
two, the value of active trading by individuals
was actually higher than the value of trading by
foreign investors.


Now that hedge funds have apparently started
taking profits, these individual day traders have
been left high and dry, with long margin
positions in stocks like Softbank that are
plunging. It's beginning to look like Japan's
individual investors may be the ones left
holding the bag yet again.


Alas, the bloom is already off Japan's long-
awaited boom.