Volatility interrupts Nikkei index run of gains

Nikkei 225 retreats sharply from 26 year high mid session without any real catalyst. Index recovers to close just 0.2% lower.

Volatility interrupts Nikkei index run of gains

The Tokyo stock market was hit by some unexpected volatility in Thursday trading, as the Nikkei 225 index slumped from a high not seen since 1992, to a 3.6% loss in the space of an hour.

The move spooked investors and elicited a number of likely theories as to exactly what happened. Even now, the cause of the steep and speedy drop isn’t certain.

After opening on a positive note, the Nikkei broke through the 23,000 level for the first time in 26 years before lunch. Then in the mid-afternoon, the index slumped to 22,652, or a loss of over 3%, from the open.

The Nikkei 225 then improved once more in the final hour of trading, to close just 0.2% lower at 22,868.71.  

Bumpy ride

The volatile period of trading meant no trader could take it easy and watch even more gains continue to rack up. However, despite the sharp and unexpected afternoon decline, analysts suggest there was no real catalyst for it.

Some have mentioned the ‘Special Quotation” on Friday, where some futures and options settlement prices are fixed, as a possible reason for the move.

Another possibility is the move began as profit taking following the recent string of strong gains. A move that could then have been exacerbated by algorithmic trading formulas.

In addition, some of the rhetoric emerging from US President Trump’s China visit that was a little less favourable than expected and could have encouraged some investor selling.

A one-off?

Whatever the cause of Thursday’s Nikkei index volatility, analysts don’t appear to be anticipating a repeat performance anytime soon.

"There was no special news that triggered this afternoon's volatile moves," said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities. "It was massive position adjustment ahead of tomorrow's SQ."

Meanwhile, according to a Bloomberg report, Singapore’s HG Research founder, Hans Goetti said the move could be a one-day event that’s nothing to worry about. 

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