Net selling of Japanese cash stocks by foreign investors hit a record high last week, which market players said appeared to be linked to selling ahead of settlement of some futures and options contracts last Friday. Foreigners sold 1.193 trillion yen ($10.7 billion) worth of Japanese cash stocks during the week of March 7-11, their 10th straight week of net selling.
Data by the Japan Exchange Group on Thursday showed it was the biggest weekly selling ever. However, last week saw limited volatility in the market, with the Nikkei share average falling a mere 0.5 percent on a weekly basis. Traders said such conflicting patterns are possible when the Nikkei and Topix futures and options settle.
"It's likely that the outcome is due to cross trade by foreign securities firms," said Yutaka Miura, a senior technical analyst at Mizuho Securities. The Nikkei and Topix options contracts settle on the second Friday of every month, while their futures settle on the second Friday of every three months, often called 'SQ', or special quotation, in Japan. Miura said that while future contracts expired, some traders might have found arbitrage opportunities to sell cash stocks at the same time, creating a large trade volume.
He also said that the market impact from the large net selling amount is likely to be limited. "While foreign brokers sell, their proprietary desks were seen buying, and the convoluted nature of these trades often makes it hard to identify trade details of brokerages and their proprietary desks." During the last week, proprietary desks, mostly at foreign brokers, bought 876.8 billion yen in Japanese cash stocks, bourse data showed.
"It's natural to think that foreign brokerages' selling in Japanese stocks is being offset by their own prop desks' buying, and this phenomenon was seen on a futures settlement day in the past, too," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. Fujito said that although foreigners' selling has persisted as investors' risk appetites have been sapped by worries about Chinese economy, weak oil prices and a stronger yen, this figure does not signal pure selling by foreigners.
Meanwhile, trust banks, which manage corporate pension trusts and national pension fund trusts, bought a net 73.7 billion yen in Japanese cash stocks. They were net buyers of Japanese cash stocks for the 16 consecutive week. The Nikkei ended 0.2 percent lower at 16,936.38 on Thursday.
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