A sharp drop of 2200 points

Ouch! Ouch! The Asia-Pacific stock market has truly taken a nosedive! The Nikkei 225 plummeted by over 2,200 points, with a nearly 6% drop, which is nothing short of dramatic. Taiwan, South Korea, Hong Kong, and Australia all experienced significant declines, and last night, U.S. and European stock markets also saw substantial falls. What exactly is happening?

Although both regions have experienced significant drops, the reasons for the Asia-Pacific stock market crash are vastly different from those in Europe and America, and they should not be conflated!

The significant decline in European and American stock markets is primarily due to the slowdown in the U.S. economy and Intel's disappointing performance outlook, which led to a collective slump in tech giants and a domino effect.

The main reason for the Asia-Pacific stock market crash is the yen interest rate hike, which tightens liquidity and places significant pressure on the market after a substantial rally. The Japanese stock market has broken through its historical high point set over 34 years ago, and several other countries' stock markets are at all-time highs. Tightening liquidity lowers risk appetite, which is a significant bearish factor for these countries' stock markets, triggering capital outflows and leading to significant stock market declines.

Advertisement

Since bottoming out in 2008, the Nikkei 225 has experienced five major waves of increases, with a cumulative gain of 506.6%. Japan is currently ending its super-loose monetary policy, which began in 2013 and lasted for more than a decade, by tightening liquidity. This is akin to removing the firewood from under a pot for the surging Japanese stock market.

Why does a U.S. interest rate hike lead to a significant rise in U.S. stocks, while a yen interest rate hike leads to a significant drop in Japanese stocks?

Although both are interest rate hikes, the stock market performances of the two countries are starkly different due to their distinct national conditions. The ultra-high interest rates resulting from U.S. interest rate hikes attract global capital to the United States for arbitrage, driving U.S. stocks upward. Japan, on the other hand, is an export-oriented economy that primarily relies on exports to drive GDP growth. A yen interest rate hike leads to yen appreciation, which is unfavorable for exports and lowers the profit expectations of listed companies. This exacerbates the situation for the surging Japanese stock market. Stock markets in all countries are the same; they speculate on performance and expectations. When expectations weaken, it naturally triggers capital to sell off in advance, rather than waiting for the weakening to become a reality before selling, as that would be too late.

Since 2023, the Nikkei 225 has experienced three major waves of increases on a weekly chart, with the last wave showing significantly less strength than the second wave and forming a clear divergence at the top. This indicates the exhaustion of the bullish attack momentum, suggesting that it is undergoing a weekly level adjustment. Therefore, the Nikkei index is facing a medium-term adjustment, and friends who are bottom-fishing for Nikkei ETFs must be cautious. Historical highs are not to be trifled with; risk prevention must be the top priority. Once a stop-loss is triggered, it is best to exit decisively, as the more you try to average down, the deeper you may get trapped.

Instead of chasing the暴涨过后的外国股市, it is better to patiently wait for the Chinese stock market, which has fallen to the floor. Everything is cyclical, and fortune favors the patient! A-shares cannot keep falling indefinitely; it is only a matter of months before the bull market winds blow in favor of A-shares. Be patient!

As the U.S., Europe, and Asia-Pacific stock markets begin to fall from their highs, capital will inevitably seek new destinations after retreating from these countries' stock markets. China, as one of the world's most important economic engines, will experience a more robust economic recovery with the implementation of favorable policies. Coupled with A-shares being a global valuation lowland, the attractiveness of Chinese assets is undoubtedly immense. It is almost expected that a large-scale flow of international capital will move from other countries to China. The spring for A-shares is approaching; get ready! This view is a bit ahead of its time, but let's verify it together in a few months.The content above represents only personal opinions and does not carry any guiding significance. Mentioning specific stocks and funds is solely for recording market perspectives and the process of actual trading, to accumulate material for future creation, and does not constitute any recommendation. Please do not blindly follow. Past performance of funds does not guarantee future results, and investors should be aware of market volatility risks. Investing carries risks, and entering the market should be done with caution!