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On the 6th local time, global stock markets emerged from "Black Monday", with the Japanese stock market leading the Asia-Pacific stock index, U.S. stock futures recording an increase, and European stock markets also rising collectively.

However, market participants believe that the trend on the 6th was likely just a rebound after the excessive selling in the previous few trading days. The aftermath of the global stock market turmoil is still rippling, and investors should not easily buy at the bottom.

Global stock markets rebound

On the 6th, the Nikkei 225 index closed up more than 10%, recording the largest single-day increase since October 2008, after falling more than 12% on the 5th. All 33 industry indicators of the Topix Index also rose. South Korea's Kospi index also closed up more than 3%, and the Shanghai Composite Index closed up 0.23%. The implied volatility of Nikkei futures has also fallen from its highest level since 2008. The yen fell back to around 146 against the dollar from about 141 a day ago, but due to expectations that the Bank of Japan will further raise interest rates, the yen's increase against the dollar this quarter has still reached nearly 11%.

"As Japanese stock prices fell much more than in Europe and the United States on Monday, market participants now realize that the market correction in Japan is a bit excessive," said Tomo Kinoshita, global market strategist at Invesco Asset Management in Tokyo. "And as Japanese stocks rebounded, other Asian markets also rebounded."

“The panic selling of the past three trading days may have ended,” said Hideyuki Ishiguro, chief strategist at Nomura Asset Management. “Nevertheless, the stock market is likely to be a roller coaster ride in the coming trading days as anxiety in global markets grows.”

Japanese Finance Minister Shunichi Suzuki said on Tuesday that the Japanese government will continue to monitor and analyze financial market trends and work closely with relevant authorities, including the Bank of Japan. "We will do our utmost to manage the economy and finance while cooperating with the Bank of Japan and make calm judgments on the current situation." Suzuki also stressed that the Japanese economy showed a bright side in terms of wages and investment. For example, real wages adjusted for inflation rose for the first time in two years in June.

U.S. stock futures also recorded gains today, while U.S. Treasuries fell from their highest levels for some time. U.S. bond yields rose across the board, with the 10-year U.S. bond yield rising to 3.84%, having fallen to 3.67% on Monday. Major European stock indices rose collectively at the opening, with the Euro Stoxx 50 index up 0.48%, the German DAX30 index up 0.58%, the French CAC40 index up 0.21%, and the British FTSE 100 index up 0.37%.

Matt Simpson, senior market strategist at City Index Inc, said, "The latest ISM service sector data slowed down the 'bleeding' on Wall Street and allowed the Nikkei index to revive. This rebound is a healthy adjustment after investors' unhealthy selling."

Analysts warn that the aftermath is not over yet

Previously, the combined impact of the imminent US recession, the fading of the AI ​​craze, and the unwinding of carry trades due to the surge in the yen led to panic selling in global stocks for three consecutive days. Although many major global stock indexes rebounded collectively on the 6th, market participants believe that investors should not easily buy at the bottom when the subsequent macro environment is still difficult to change fundamentally and the unwinding effect of carry trades is difficult to estimate.

Stephen Dover, chief market strategist and director of Franklin Templeton Institute, told Yicai.com, “So far this year, we have been warning that the U.S. stock market is overvalued, so there is little room for market disappointment. Our year-end target for the S&P 500 remains at 5,250, just slightly higher than the opening point on the morning of the 6th. We agree that when the U.S. stock market is turbulent, investor pricing, momentum and quantitative trading may be the decisive factors. Although the implied stock volatility VIX index has soared to 65, the highest level in four years, this round of turmoil may not be over yet.”

He also added thatIn this round of global stock market turmoil, non-US markets have been hit harder, which also reminds investors that when global stock markets are facing major adjustments or are in a bear market, it is almost impossible to diversify the risks of stock investments by region or industry."Opportunities will eventually emerge, but for now it's too early to buy at the bottom unless you are an ultra-long-term investor," he said.

Regarding the market outlook, Duville said, "Based on historical analysis of the period of economic slowdown in the United States, we believe that growth stocks will outperform value stocks, and the quality of growth stocks is also guaranteed. But for small-cap stocks, we are worried about the risk that corporate earnings will disappoint investors."

Sunil Tirumalai, chief strategist for global emerging market equities at UBS, also told Caixin that a series of global macro events jointly triggered the sell-off, including heightened concerns about a U.S. recession after the release of weak employment data, mixed feedback from technology stock earnings and high valuations/expectations, increased geopolitical tensions (especially in the Middle East), and the unwinding of yen carry trades after the Bank of Japan's decision to raise interest rates.

Specifically speaking of emerging market stocks, he said that the MSCI Emerging Markets Index fell by about 5.5% in the past week. In absolute terms, compared with bonds, stock valuations do have expectations of subsequent interest rate support, but current prices may still not fully reflect the downside risk to earnings brought about by the slowdown in the US and global economies. At the same time, the market currently expects that, under index weighting, earnings per share in emerging markets will increase by 16% and 18% this year and next year, respectively, which is higher than the growth rate in the past "normal" global macro environment. Whether this can be realized in the future also depends on whether the emerging market technology industry can really achieve significant growth.

In addition to various macro factors, carry trades will continue to close, causing multiple assets including global stocks to continue to be sold off, which is also the reason why many market participants dare not easily enter the market. Zhe Shen, head of diversified strategy at TIFF Asset Management, said: "We expect the sell-off to last for several days because the scale of carry trades is usually quite large. Investors may think, wait, we have lost too much money due to closing positions. Let's slow down a bit today and continue tomorrow or in a few days." He said that it may take several days to completely close carry trades, which will prolong the duration of the market crash.

Ulf Lindahl, CEO of institutional investor consulting firm Currency Research Associates, also said: "As far as we know, there are still a lot of yen carry trades that need to be closed. Investors are still scrambling to figure out the size of the carry trade and how much of it is used to invest in the stock market."

Kathy Jones, chief fixed income strategist at Charles Schwab, added that in addition to the difficulty in knowing the actual size of carry trade positions, it is also difficult to know how many of them are hedged and how many are not, so it is difficult to assess the extent of the resulting market selling pressure. "For leveraged hedge funds, or when derivatives are involved, the impact of liquidation on the market will be quite large," he said.

According to calculations by hedge fund research firm PivotalPath, the hedge fund strategies most affected by the yen rebound are global macro quantitative strategies and managed futures strategies, which have large short-term exposure to the yen. According to the agency's risk exposure model, the yen surge from August to now has caused these funds to lose 1.5% to 2.5% in performance.