Phorgy Phynance

Never underestimate the power of the retail investor

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One of the possible explanations for the bond conundrum, i.e. longer-dated Treasury yields seemingly independent of the short end, has been the Asian savings glut. Two factors that impact the savings glut are the increasing wealth of oil exporting countries and of Asian economies.

What could undo the savings glut? One would be a stabilization in oil prices. Another would be decreased savings rates in Asia.

I just spent the last week in HK and if you weren’t aware of the investment craze going on there and in mainland China, you should quickly educate yourself. Everyone is obsessed with the stock market. People are borrowing money against their houses to invest in stocks. That doesn’t sound like a culture particularly interested in keeping up a high savings rate. As Asian investors move assets from savings to investing, what will that do to the US Treasury curve? Currently, it seems that increased oil wealth is holding down yields, but I don’t think that is sustainable. Especially as oil producers are diversifying away from the USD.

Another sign of Asian investor’s decreased willingness to save comes from Japan, where it makes perfect sense. Why save when the interest rates are so low? One thing I’ve been keeping on the back of my mind for the last few months is the impact of retail investors in Japan.

Here’s an interesting article that came out Friday in the TimesOnline:

The kimono traders
Japanese housewives have ditched their traditional subservient image for the world of currency trading – influencing both international markets and Japan’s economy.

Here’s an excerpt (my emphasis in bold):

Yuko Kuriki, the instructor, says women want to use the markets to assert their independence as thinkers and create their own financial security. “Japan certainly has a sense of embarrassment about individuals getting rich but people have come to realise that without risk, you can’t get anywhere so there is a shift from savings to investment. Some women are now risking the family savings on stocks and forex: some are worried about their future, others are unashamedly greedy,” she says. “We are a culture that is traditionally most concerned with not losing money, rather than making lots of it. But the country has offered no yields for a decade so we have had to become investors.”

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Written by Eric

August 5, 2007 at 8:35 am

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