Japan, US and Indian Market CRASH!! - Cause of BIG Concern? - Rahul Jain Analysis #marketcrash

Summary

In this video, Rahul Jen, a full-time investor, discusses the crash of the Japanese and US stock markets and its impact on India. He explains the 'carry trade' concept, where investors borrow at low Japanese interest rates to invest in higher-yielding US assets. The recent increase in Japan's interest rate has led to a reversal of this trade, causing market falls. Rahul also addresses US recession fears, unemployment rates, and manufacturing slowdowns. Despite global market turbulence, he advises Indian investors to remain calm, continue SIPs, and consider this a buying opportunity, emphasizing long-term investment strategies.

Takeaways

• 📉 The Japanese market has experienced a significant crash, with the Nikkei 225 falling by around 12.40% in 5 days and 23% in a month, which is considered a very large drop in a short period.
• 💡 The concept of 'carry trade' is introduced, where investors borrow at low interest rates in one country (Japan) and invest in another (US) to earn a higher return.
• 🗼 Japan's interest rates have been extremely low, even negative at times, due to low inflation and deflationary periods, making it an ideal candidate for carry trade.
• 💻 The recent increase in Japan's interest rate from 0.14% to 0.25% has sparked fear among investors, leading to a reversal of the carry trade and contributing to the market crash.
• 📈 The US market is also experiencing a downturn, with the NASDAQ falling by 2.5% in one day and 9% in a month, due to fears of a recession and various economic indicators.
• 🔎 Key economic indicators such as unemployment rate and PMI suggest a slowdown in the US economy, contributing to the market decline.
• 🌐 Global events, including potential conflicts between Iran and Israel, can impact the US market and investor sentiment.
• 🇮🇳 Despite the issues in Japan and the US, the Indian market's fall is more influenced by foreign portfolio investors (FPIs) and their reactions to global events.
• 📊 The Indian market's valuation, as indicated by the Nifty PE ratio, is currently at a sweet spot, neither overvalued nor undervalued, suggesting a fair market value.
• 💼 The speaker advises against panic selling and emphasizes the importance of a long-term investment strategy, especially for SIP investors.
• 🚀 For those with cash reserves, the current market situation is viewed as an opportunity for strategic buying into long-term assets, with a focus on maintaining some cash for potential market fluctuations.

Q & A

Why is the Japanese market experiencing a significant crash?

The crash is attributed to the reversal of the 'carry trade' strategy, where investors borrowed at low interest rates in Japan and invested in higher-yielding markets like the US. The recent increase in Japanese interest rates has disrupted this strategy, causing investors to withdraw funds and sell off assets.

What is the 'carry trade' concept mentioned in the video?

The 'carry trade' is a strategy where investors borrow money at a low-interest rate in one country and invest it in another country where the expected return is higher. This creates a profit from the interest rate differential without risking the investor's own capital.

How has the Bank of Japan's interest rate policy contributed to the carry trade?

The Bank of Japan has maintained very low interest rates, even negative rates at times, making it an attractive place to borrow money. This low borrowing cost facilitated the carry trade, where investors borrowed in Japan and invested in higher-yielding markets.

What factors have led to the depreciation of the Japanese Yen against the US Dollar?

The depreciation of the Japanese Yen is due to a combination of factors, including Japan's low-interest rate policy, which has made the Yen less attractive as an investment, and broader economic factors that have weakened the currency over the last five years.

Why is the US market also experiencing a downturn?

The US market downturn is linked to fears of a recession, indicated by rising unemployment rates and a slowdown in manufacturing activities. Additionally, delayed rate cuts by the US Federal Reserve and geopolitical tensions, such as the situation between Iran and Israel, have contributed to market uncertainty.

What is the Purchasing Managers' Index (PMI), and why is it significant for the US market?

The PMI is an index that measures the performance of the manufacturing sector. A PMI below 50 indicates contraction in manufacturing activities. The recent fall in the US PMI to 46.8 suggests a slowdown in the US economy, contributing to market concerns.

How has the Indian stock market been affected by the global market downturn?

Although India's economy is distinct from Japan and the US, the Indian stock market has been impacted due to foreign portfolio investors (FPIs) selling off equities out of fear and moving towards safe havens like US bonds or gold.

What is the current state of the Nifty PE ratio, and what does it indicate about the Indian market's valuation?

The Nifty PE ratio is currently around 23, which is considered fairly valued, neither overvalued nor undervalued. This suggests that the Indian market is in a 'sweet spot' and not at an extreme valuation level that would cause concern.

What advice does the video provide for investors regarding their portfolios during this market downturn?

The video advises against panic selling and market timing. It suggests continuing systematic investment plans (SIPs) and maintaining a long-term investment perspective. The speaker also personally plans to buy more assets, dividing cash into chunks to invest as market opportunities arise.

What is the speaker's view on the long-term prospects of the Indian economy and its companies?

The speaker is optimistic about the long-term prospects of the Indian economy and its companies. They believe that despite short-term market fluctuations, the Indian market will continue to rise in the long run, driven by strong economic fundamentals and the performance of good companies.

Outlines

00:00

📉 Market Crash Analysis: Japan and US Impact

The video script begins with an introduction by Rahul Jen, a full-time investor, who outlines the purpose of the video: to discuss the crash of the Japanese market, its ripple effect on the US market, and the implications for the Indian stock market. The script delves into the concept of 'carry trade,' explaining how investors borrowed money from Japan at low interest rates to invest in higher-yielding markets like the US. The Bank of Japan's historically low interest rates, including a period of negative rates, and the weakening of the Japanese yen over the last five years are highlighted as key factors that facilitated this trade. The recent rise in Japan's interest rates has led to a reversal of this trend, causing a sell-off in US equities and contributing to the market crash in Japan.

05:02

🇺🇸 US Market Downturn and Economic Indicators

The second paragraph focuses on the decline of the US market, with the NASDAQ down by 2.5% in a day and 9% in a month. The script discusses several factors contributing to the downturn, including fears of a US recession, an increase in unemployment rates, a slowdown in manufacturing activities as indicated by the PMI index, and geopolitical tensions between Iran and Israel. Additionally, the lack of rate cuts by the US Federal Reserve and the potential late timing of such measures are cited as concerns for investors. The script emphasizes that market movements are unpredictable and are often driven by recent economic data and events.

10:02

🇮🇳 Indian Market Response and Investment Strategy

In the third paragraph, the script addresses the impact on the Indian market, noting that despite the problems being specific to Japan and the US, the Indian market has also fallen due to foreign portfolio investors (FPIs) selling off equities. The script provides data on the percentage of Indian equities held by FPIs and domestic institutional investors (DIIs), highlighting a narrowing gap between the two. It also discusses the valuation of the Indian market, with the Nifty PE ratio being at a 'sweet spot' and not overvalued. The speaker shares his personal investment strategy, emphasizing the importance of not timing the market, continuing systematic investment plans (SIPs), and using cash reserves to invest during market dips.

15:03

💡 Long-Term Investment Perspective and Advice

The final paragraph offers advice for investors, emphasizing a long-term perspective regardless of short-term market fluctuations. The speaker encourages viewers not to panic and to continue with their investment plans, including SIPs. He also shares his personal approach to investing during market downturns, such as dividing cash into chunks to invest incrementally. The script concludes with a reminder that Indian companies are fundamentally strong and that long-term investors should not be overly concerned about temporary market volatility.

Keywords

💡Market Crash

A market crash refers to a sudden and dramatic decline in the value of stocks or other investments within a market. In the video, the speaker discusses the crash of the Japanese and US markets, which is central to the theme of the video as it sets the stage for the discussion on the impact of these events on the Indian stock market and the viewers' portfolios.

💡Carry Trade

Carry trade is an investment strategy where an investor borrows money at a low-interest rate in one country and invests it in another country where the expected return is higher. The video explains how this concept has been applied to Japan and the US, where investors borrowed at low Japanese interest rates to invest in the US, and how changes in this dynamic have contributed to market crashes.

💡Interest Rate

The interest rate is the cost of borrowing money or the return on investment. In the context of the video, the speaker discusses how low interest rates in Japan have facilitated the carry trade strategy and the subsequent increase in interest rates as a factor in the market crash.

💡Inflation Rate

The inflation rate measures the average annual increase in prices of goods and services in an economy. The video mentions Japan's low inflation rate, which has contributed to the country's low interest rates and, in turn, its role in the carry trade strategy.

💡Currency Depreciation

Currency depreciation refers to a decrease in the value of a currency over time. The video script mentions the depreciation of the Japanese Yen against the US dollar as a factor that made Japan an attractive place to borrow money for the carry trade.

💡Unemployment Rate

The unemployment rate is the percentage of the total work force that is unemployed but seeking employment. The video discusses the rise in the US unemployment rate as an indicator of economic slowdown and a contributing factor to the US market crash.

💡Purchasing Managers Index (PMI)

The PMI is an economic indicator that measures the activity level of the manufacturing sector. The video cites a drop in the US PMI as evidence of a slowdown in manufacturing activities, which is a sign of economic trouble and a reason for the market decline.

💡Foreign Portfolio Investors (FPIs)

FPIs are investors who invest in a country's financial markets from a different country. The video explains that the Indian market's fall is partly due to the selling off by FPIs, who are moving to safer investments due to global economic uncertainty.

💡Systematic Investment Plan (SIP)

A SIP is an investment strategy where an investor commits to invest a fixed amount regularly, typically monthly, in a mutual fund. The video encourages viewers to continue their SIPs despite market volatility, emphasizing the long-term benefits of consistent investing.

💡Nifty PE Ratio

The Nifty PE Ratio refers to the price-to-earnings ratio of the Nifty 50 index, which is a benchmark index of the National Stock Exchange of India. The video uses the Nifty PE ratio to argue that the Indian market is fairly valued and not overvalued, suggesting that there is potential for growth despite short-term volatility.

💡Long-Term Investment

Long-term investment refers to the purchase of financial instruments with the intention of holding them for an extended period to achieve long-term goals. The video emphasizes the importance of maintaining a long-term perspective and not reacting to short-term market fluctuations, which aligns with the speaker's advice on continuing SIPs and not selling off equities.

Highlights

The video discusses the crash of the Japanese market, attributing it to the concept of 'carry trade'.

Japan's Nikkei 225 index has fallen significantly, indicating a substantial market crash.

The 'carry trade' involves borrowing at low interest rates in one country and investing in another for higher returns.

Japan's low-interest rates and weak currency have made it a prime candidate for 'carry trade'.

Investors have been borrowing from Japan and investing in the US for substantial profits.

Japan's recent interest rate increase has triggered a reversal in the 'carry trade', causing market instability.

The US market is also experiencing a downturn due to fears of an impending recession.

US unemployment rates have risen, indicating potential economic slowdown.

A decrease in US manufacturing activities, measured by the PMI, signals a possible recession.

The lack of rate cuts by the US Federal Reserve is causing investor apprehension.

Geopolitical tensions between Iran and Israel could have ripple effects on the US economy.

Despite the global market turmoil, the Indian market's fall is primarily due to foreign investor reactions.

Indian equities are influenced by Foreign Portfolio Investors (FPIs), which are selling off due to global market fears.

Domestic Institutional Investors (DIIs) are increasing their holdings in Indian equities, reducing the gap with FPI holdings.

The speaker believes that the Indian market is fairly valued and not overvalued, suggesting a 'sweet spot' for investment.

The speaker advises against panic selling and recommends continuing Systematic Investment Plans (SIPs).

The speaker personally plans to buy more in the market, dividing cash into chunks for investment.

Long-term investors are advised not to worry about short-term market fluctuations and to focus on the fundamentals of their investments.

Transcripts

hi friends no matter when you're are

watching this video this is an extremely

important video because in this video

I'm going to discuss with you why the

market in Japan has crashed like

anything number two why the US market

has also at the same time crashed like

anything and its Ripple impact on Indian

stock market and number three what does

this actually mean for Indian stock

market and more importantly your

portfolio what should you do it's going

to be an extremely important video with

lot of macroeconomic data analysis and

if you don't know me my name is Rahul

Jen and I'm a full-time investor with

that let's get this video started so

let's start with why Japan's Market has

crashed like anything if you see my

screen you will see that today at the

time of recording this video Japan's

nikai 225 has fallen by around

12.40% last 5 days it is down by almost

around 18% and in the last 1 month it is

down by around 23% 23% fall in any stock

market is considered very very big fall

within few days so what is going on here

is what we need to understand for this

very important concept that you need to

learn today is a concept of carry trade

Allow Me 2 minutes of time to explain

this to you so imagine a country a that

is offering you loan at let's say 2%

interest rate and since 2% interest rate

is a very very cheap loan interest rate

as an investor what will you do you will

say that Rahul I'm happy to take loan

from country a and let's say that you

take 10 lakh Rupees of loan from country

a at 2% interest rate now what you can

do with this 10 lakh Rupees is that you

can go and invest in country B where you

expect to generate returns of let's say

8% and 10% so that what you've done here

is that youve borrowed from country a at

a 2% interest rate and you have invested

in country B and generated returns of

let's say 10% so in this entire trade

you have not put your own Capital what

you've done is you've taken a risk here

but what you've done essentially is that

you've done a Arbitrage where you've

taken money at 2% interest rate and

you've earned 10% from country B giving

you 8% of profit now this concept is

called carry trade and essentially what

you've done is you've carried over from

one country to another and hence have

made some handsome money now replace

this country a by Japan and Country B by

us and this is exactly what investors

have done they have borrowed from Japan

and have put the money into us in the

last 8 to 10 years earning a lot of

money which is now coming back and

biting them back let me explain to you

how that is there now for this concept

of carry trade to work the country a and

in country B needs to fulfill two key

criteria criteria number one is that in

country a the interest rate the

borrowing rates needs to be really

really low and secondly country A's

currency need to be really really weak

as compared to Country B so these two

criteria if they are met then this carry

trade concept really works beautifully

for Country A and B's combination let me

now prove this with some data for how it

has worked out for Japan and us for the

last 8 to 10 years have a look at my

screen and you will see this is the Bank

of Japan interest rate the rate at which

bank of Japan land money to Banks within

the Japan right this is also called us

Fed rate in the case of us in our case

it is called the repo rate now here what

you see interestingly is that bank of

Japan's interest rate back in 2008 used

to be only 50% right and India right now

we have repo rate at around 6.5% and in

us we have at around 5.25 to

5.50% where in Japan we're only talking

about interest rate at 5% very very low

interest rates and in fact if you see

for a very long period from 2008 onwards

it remained very low at 10% more

interestingly if you see this time frame

here from 2016 onwards this interest

rate was in negatives meaning that if a

person need to deposit money in bank

bank will not give them any interest

rate because it's a negative interest

rate the person will have to give money

to bank to keep that money safely you

won't see this sort of phenomena

anywhere in in the world except what has

been happening in Japan so the key

question is why was this happening in

Japan and for this have a look at the

second chart here which is the inflation

rate in Japan and what you will very

quickly note is that after 2002 or 2004

the inflation in Japan has been really

really low in fact there have been times

where there have been deflation where

the product prices are not going up in

fact they're coming down why because

people are not spending their money and

therefore what happens is when your

inflation rate is very very low people

are not spending money in your economy

what the interest rates will be they'll

be really really lower because what

government wants it people to borrow

money so that they can go ahead and

spend the money so that the economic

cycle goes up but that was not happening

in Japan that's why Japan kept their

interest rate very very low in fact in

negatives for a number of years and

that's why Japan became the perfect

candidate for Country a where the

interest rate is very very low now comes

the weaker currency criteria number two

and if I show you some data here you

will see that in the Last 5 Years how

Japanese Yen has been depreciating

against US dollars if you see it has

come down very very massively now there

could be a multiple reasons why the

currency has weakened in The Last 5

Years again if I go into those details

it'll become a video dedicated only why

the currency has fallen so let's just

keep that to one side and just remember

that two criteria here Japanese have met

is number one very low interest rate and

number two their currency has weakened

now due to this what has happened is

many investors within Japan what they

have done is they've borrowed a lot of

money from Japan and have invested this

money in us why in us because a US is

the number one economy and US economy

has been very very strong in the last 20

years so this phenomena has been going

on for a number of years it's not

something that has just happened

overnight it has been happening for a

number of years now you must be

wondering that Rahul you've explained so

much details about it but we still don't

understand why the stock market in Japan

has fallen this is mainly because just

few days ago what Japan did was that

they have now raised their interest rate

by1 15% if you look at the same chart

again you will very quickly notice that

just few days back what they've done is

they've moved from

0.14% to. 25% and when the Japan has

done this what this is likely to do is

it is created a fear that if in Japan

interest rate goes up the entire logic

of borrowing from Japan will go for a

toss and now what people are trying to

do they're trying to sell the stocks in

us or equities or the bonds in us and

they are trying to pull the money out of

US market because they have to

potentially return it back to Japanese

economy and this is the first sign of

reversal of this carry trade happening

that's why there is a fear going on

that's why Japan stock market came down

that's why US market also came down

which I'll speak about in a minute in

terms of why US market is also falling

down because there are some US economy

related issues as well that are going on

so far if liking this video hit the like

button and let me know in the comments

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subscribing to my YouTube member

Community I post updates almost on daily

basis on my YouTube member Community as

well with that let's move to the point

number two which is why the US market is

falling now and if you look at the

NASDAQ you will see it is down by around

2.5% in last one day and if I look at

the last one month it is down by around

9% so if I look at the YTD here data you

will see that it was alltime high at

around

18,600 level and now it has come down to

16,700 level almost 2,000 Point crash is

what we can see here 10 to 11% it is

down within a month of time also you

might have heard in the news that

legendary Warren Buffett has been

sitting on cash now

$277 billion us he's been selling Apple

steak and so on and so forth and the key

reason that the US markets are falling

is mainly because there's a fear of us

going into recession and there are two

important metrics that are indicating

that there is going to be a Slowdown in

us so let me quickly present you that

data so just last Friday 2nd of August

it was published On Us official website

that their unemployment rate has gone up

which has gone to 4.3% in the month of

July so it has gone up by 2% and it is

now at 4.3% in the month of July and the

number of people that have become

unemployed has gone up by around 352,000

people so total 7.2 million people in US

are unemployed as of month of July 2024

it used to be at around 5.9 Million last

year so if you compare this with the

last year 5.9 million people were

unemployed in July month now in this

year in July 2024 7.2 million people are

unemployed in us and that is an

indication for people that if the

economy is doing well or not because if

the people are unemployed then it means

that there is a problem in terms of

people finding jobs the second key

measure of the economic activities in

any country is there manufacturing

activities which is in the case of us is

measured by a index called purchasing

managers index or PMI now if you see the

data in the month of July this index has

fallen to

46.8 Simply meaning that the

manufacturing activities in us has

slowed down in the month of July so if

the manufacturing activities are slowing

down and at the same time people don't

have jobs then what is likely to happen

people will start to get fearful about

upcoming recession thirdly if we see us

us fed has not yet done the rate Cuts we

have been waiting for a long long time

now but still they have not done any

rate cuts and it is likely to happen in

the month of September and many

investors feel that it is slightly too

late they should have cut the rates few

months ago but again this is one

sentimental Factor here as well fourth

point to note is what is happening

between Iran and Israel because of the

war situation that has been built there

us will not be left out of this war if

these two countries go on to War I don't

know when you're watching this video but

by then things might be very very clear

but the simple point is that because of

these factors US market is down an

important takeaway for you who here is

that nobody can predict the stock market

movement because as you can see this

data about unemployment rate was only

published couple of days back so how can

people predict about whether the stock

market will fall or not because it is

the data point that is driving the fear

in the market and investors are selling

off their equities let's move to point

number three which is why Indian markets

are falling and what is the impact on

your portfolio what what should you

really do in this particular situation

so Point number one here is that Japan's

problem is Japan's problem not India's

problem secondly Us's problem is US's

problem not our problem Indian equities

are nothing to do with these two but

still our stock market has fallen mainly

because we still have fairly large

percentage of our equities held by fpis

Foreign portfolio investors if I show

you some data you will see that as of

June 2024

17.38% the blue line that you see here

17. 38% of our equities are held by

Foreign portfolio investors although if

you see the diis which are for example

mutual funds insurance companies Pension

funds which are based in India their

ownership of Indian equities have been

going up and it is gone to

16.23% so the difference between fbii

holding and the DI holding is very very

low now it has come down to almost last

I don't know 10 to 15 years of low gap

between fi and diis but still we have

lot of fpi that's why foreign investors

are selling Indian equities as well out

of the fear because they are going to go

and invest in safe Heavens For example

us bonds or gold as well because you

might have seen in the last couple of

days the gold prices have started to go

back up but to be honest whenever the

markets have fallen in the last 6 months

to one year what I have noticed is that

very quickly they have recovered because

diis start to buy back in Indian

equities and that's what the trend has

been in the last 6 months to 1 year the

second key point we need to think about

Indian Market is from a valuation

perspective and if if you see here Nifty

PE ratio chart you will very quickly

note that right now Nifty PE is at

around 23 and in my view it's not

overvalued it's not undervalued it's

right at The Sweet Spot because

overvaluation will be somewhere when

Nifty p is trading at around 38 40 you

see these 38 40 40 here back in January

February March 2021 while Nifty was

trading at around 1920 in the month of

June July 2022 this is where I call

personally Nifty undervalued right now

in my view at 23 it is a fairly fairly

valued game I don't think we are highly

overvalued right now and to be honest if

I see Nifty has fallen down by 2.68%

today but if you look at the picture in

the last one year Nifty gained almost

22% so we have seen a massive rally in

the last one year and if the market fell

by 2% I don't think it's a much fall to

be honest there might be more Falls

there might be some sideways movement

now going forward because of the problem

that is there in the US the problem that

is there in the Japan but overall in my

view Indian markets are not highly

overvalued that we should worry about

now comes the most critical point what

should you do in terms of your own

portfolios so quick few points that I

want to make Point number one is that

I'm not going to speculate and tell you

whether the market is going to continue

to fall whether it will rise or not

there are people out there who are

grading a lot of YouTube videos giving

you Nifty support levels and all that

I'm not a technical Trader so I don't

even look at those chart in terms of

where is the next level support and all

that for me the critical point here is

that I am not selling even a single

Equity right now from my portfolio not

even in Index Fund not even ETFs that

game is very very dangerous where you

try to sell and try to buy and all that

we are not trying to time it at all

Point number two is if you're a sip

investor in my view you should continue

to do your sips the entire purpose of

doing sip is that no matter what happens

in the market you continue to remain

invested you don't become fearful don't

get panic and don't sell your portfolio

in my view in fact continue to do your

sip Point number three is I will

continue to buy in this market in fact I

wrote a detailed note this morning when

the market was falling to my YouTube

member community and I explained to my

YouTube members that this is the time

where I am buying personally I taking

some bets into some sensible long-term

assets that I have built for myself

again if I name them they might become

recommendations and my intent is not

that I share you the names of the stocks

but in my view I'm going to continue to

buy and in fact I've divided my cash

into four to five chunks today itself I

deposited one chunk there because I

don't know when the market will bottom

out in my view we need to always keep

some cash positions that's what even

mutual fund managers do that's what the

big investors do so again there is no

time to panic here just keep calm if

you're really getting jittery about your

portfolio go away take some break go for

Holiday don't track the market at all

stop reading some bad news because these

are very dangerous for you in my view if

you're a long-term investor there is

nothing to worry about in the next 2 to

three years let me tell you that you are

going to forget about what happened on

5th of August completely because in the

long run Market will continue to rise

Indian econom is strong we have a lot of

good companies that are continuing to

earn more and more money quarter on

quarter year on year we shouldn't worry

about as long as you know which stocks

to pick which index funds to buy which

ETFs to invest and if you do not know

any of that just continue with your

simple sips you're going to build wealth

for yourself if you remain invested in

the long term I hope you enjoyed this

video if you did hit the like button let

me know in the comments a simple thank

you I'll see you in my next video Until

then keep talking