The Japanese earthquake hit late in the day Friday (Japan time), and the Nikkei hadn’t fully digested by the time of the close, although at one point Nikkei futures were down 5%.
How might this play out?
In a note, BofA/ML strategist Michael Hartnett notes that fund investors currently hold just 3.5% of their assets in cash, an extremely low level, which according to Hartnett could easily induce a 5-10% selloff. Bear in mind that the Nikkei has been the hottest global market in 2011.
Then of course, there’s the Kobe earthquake as a guide:
Perhaps more ominously, for the legion of investors who are short the yen on that supposed hyperinflation that’s right around the corner, this is what USD/JPY did after Kobe. Big pain for Kyle Bass.