The Japanese stock market changed course again after the afternoon session opened!

On the morning of November 19th, the A-share market launched a strong counteroffensive led by large-cap stocks such as Sinopec, PetroChina, and bank stocks. The A50 index also surged straight up, gaining over 1% at one point. However, the Japanese stock market plunged again after the afternoon session opened, and European and US stock futures weakened once more. Simultaneously, major news emerged from the external markets.

According to Kyodo News, Japan's economic stimulus package is expected to exceed 20 trillion yen, with an additional budget of approximately 17 trillion yen to fund it. Possibly because this scale exceeded market expectations, Japanese government bonds continued to be sold off on a large scale, with the 10-year bond yield soaring to over 1.78% at one point.

At this time, Japan is also taking action. Bank of Japan Governor Kazuo Ueda, Finance Minister Shunichi Suzuki, and Minister of State for Economic and Fiscal Policy Yoshitaka Shindo will hold a meeting at 6:10 PM local time. Finance Minister Suzuki will speak to the media after the meeting at 6:30 PM on the 19th.

Plunge After the Counteroffensive

The A50 index launched a major counteroffensive. In the morning, after a slight decline, it experienced a significant surge, with gains exceeding 1%. However, it weakened again around noon. The structure of the A-share market still showed divergence. In the morning session, fewer than 1,000 stocks advanced, far outnumbered by declining stocks. Sinopec once surged over 4%, PetroChina also rose nearly 4%, and the Dividend Index rebounded nearly 0.5%. Bank of China, Industrial Fulian (601138), Industrial and Commercial Bank of China, China Life Insurance (601628), and others collectively rose, providing important support to the broader market.

Industrial Securities stated that in the third quarter of this year, the allocation ratio of Chinese insurance funds to equity assets increased significantly, approaching a historical high. There was substantial increased allocation to banks, as well as dividend sectors like steel and textiles & apparel. The investment ratio in stocks and funds by insurance funds rose sharply to 15.5% in Q3, very close to the historical high of 16.1% in the first half of 2015. The investment ratios in bank deposits and bonds decreased by 0.7 and 0.8 percentage points respectively compared to Q2, to 7.9% and 50.3%.

However, the renewed plunge in external markets at noon may add further variables to A-shares. The Hang Seng Tech Index fell nearly 1% at the close of the morning session. The Nikkei Index rebounded nearly 0.8% in the morning but plunged significantly after the afternoon session opened. The South Korean stock index also turned from a rebound to weakness. Cryptocurrencies, assets that have suffered heavy losses, rebounded in the morning session, but the extent of the rebound narrowed significantly by noon. The three major US stock futures indices all turned from gains to losses, and the decline in the S&P 500 VIX index also narrowed significantly, indicating increasing volatility.

When Will the Turmoil End?

It is worth noting that Japanese government bonds are still falling sharply, with their 10-year bond yield already exceeding the 2008 high. A major reason for the recent global market sell-off is the liquidity issues triggered by Japanese government bonds.

According to Kyodo News, Japan's economic stimulus package is expected to exceed 20 trillion yen, with an additional budget of approximately 17 trillion yen to fund it. This scale may have exceeded market expectations, hence the significant renewed sell-off in Japanese government bonds in the afternoon.

Japan stated that Bank of Japan Governor Kazuo Ueda, Finance Minister Shunichi Suzuki, and Minister of State for Economic and Fiscal Policy Yoshitaka Shindo will hold a meeting at 6:10 PM local time on the 19th.

Goldman Sachs previously stated that as investors begin to worry that Japan's stimulus scale might be larger than expected, Japan's fiscal risk premium is returning, which will put pressure on long-term government bonds and the yen. The market is increasingly concerned that the Japanese government might abandon its commitment to "achieving primary balance" and its long-term fiscal goals. There is widespread concern that Japanese long-term bond yields could surge significantly again and spill over into global markets.

Bob Diamond, former CEO of Barclays, said the recent turmoil in global markets resembles a "healthy correction," and he does not expect it to deteriorate into a bear market as investors try to assess various aspects of technological change. Diamond said: "Looking at the impact of AI from a two-, three-, or five-year perspective, I would feel comfortable."

It is worth mentioning that, as of the time of writing, the yield on Japan's 10-year government bond has also retreated significantly, which might offer the market a breather.