LowStockPrice-CapitalFlightNotNecessarilyEqual1

I touched it a little
However, Japan's stock index and Nikkei average are minus 600 yen on the previous day compared to the previous day
After falling sharply, the price rose 400 yen over the previous day.
In the afternoon, selling and buying was complicated,
Eventually, the transaction closed at 17,01.53 yen, up 0.06 % from the previous day.

On the other hand, 10- year JGB yield
+ 1.2bp (basis point) compared to the previous day, rising to 0.012 %,
Dollar and yen up 0.65 % YoY
1 dollar = around 106.60 yen (* All are as of Tokyo time close).

Under these circumstances, the movement of the foreign exchange market in neighboring countries is very suspicious.

South Korean Won / USD KRW exchange rate ( USDKRW )
One dollar = around 1240 to 1245 won,
Momentarily on June 11 , 2010 (closing price $ 1 = 1,246.10 won)
It is a style with the lowest price since then.

Is this temporary or will it last for a while?
It is unclear at this time if the won will accelerate further.
But basically in the market

It is a world where it is not surprising that there is anything.

The situation remains noteworthy.

Economic Collapse and Stock Depreciation

What is economic collapse / collapse ?

By the way, in this article, I changed the viewpoint a little,

Consider「Economic collapse」or「Economic decay」 .

But,

What do the states 「Economic collapse」and「Economic decay」 mean?

There is no proper definition.

So, in thinking about this,

It may be faster to think in some specific cases.

Like Japan right after the end of the war, all major urban areas were damaged by incendiary bombs and atomic bombs,

If supplies were scarce and many people were forced to eat or not eat,

Certainly, you may find that you are in "substantial economic downturn."

Or the lack of supplies, like in recent years Zimbabwe and Venezuela,

Cases of mismanagement of the economy and a sharp fall in monetary value (hyperinflation)

If there is, like North Korea, eat sanctions from the international community,

There is a situation in which daily necessities are extremely poor.

Like Zimbabwe, Venezuela and North Korea,

Despite having some economic power,

A state where the overwhelming majority of the people can not live a healthy and cultural life for some reason

If so, it is definitely in a state of "economic collapse."

So, in the case of southern European countries that have defaulted on government bonds,

What should we think about?

In Southern European countries, the unemployment rate of society as a whole is very high,

Life is somehow established,

Many of the people (at first glance) seem to live cheerfully and non-quietly.

Unemployment rates in Southern European countries are high,

Even so, the national life is still established,

It is subtle whether this can be called an "economic collapse".

In Iceland just after the financial crisis ( 2008 )

At the national level, the financial system has been driven to a practical collapse

But most Icelandic people

"Even if you lose your job, you can live if you return to fishermen."

They seemed to be very optimistic.

Furthermore, it caused defaults on government bonds denominated in foreign currencies

In South America and Argentina, food self-sufficiency is high in agricultural countries

Is there a situation that the whole people eat and eat without living?

There is no story.

Countries that do not rely on imports of basic living goods are strong in the event of a currency crash.

(* Like Venezuela,

In some cases, even though it was a resource-rich country, it was in a state of economic collapse

This is not to say that if a resource-rich country does not fail, then ... )

On the other hand, even if you do n’t have a noticeable default case,

As a result, social inequality has grown too much like in the Philippines,

Public security has deteriorated dramatically and the poor have been forced to live poorly

One such case is that, depending on the point of view, "national life is collapsing."

It may be said.

The plunge in stock prices is not necessarily

Does not mean "economic collapse"

In these circumstances, recently,

Looking at the discussions of several web review sites, etc., I am a little worried that

It explains that if the stock price plummets, foreign capital escapes and the economy collapses

But this is not really correct.

When the stock price “only” plunged,

Not because the company goes bankrupt or the economy goes bankrupt.

To begin with, "shares" are not debts that have to be repaid.

If you are familiar with corporate accounting, you probably know,

When the stock is issued by the stock company

Recorded in shareholders' equity and capital surplus (in the case of Japanese standards).

However, once the shares are issued, the relationship with the capital is cut off,

There is no link between the company's capital amount and the real value of the stock.

For listed companies, shares are traded on stock exchanges,

The price (market value or fair value) is established by investors buying and selling stock.

Then, the company's earnings forecast announcement, stock split, corporate restructuring, macroeconomic environment

Stock prices fluctuate due to social events (such as wars) that affect such things.

On the other hand, in the case of private companies, stocks are not traded on stock exchanges,

It don't understand the fair value.

It is possible to calculate the real value by using methods such as book value and book value

However, according to Japanese standards, unlisted stocks are not subject to market valuation.

(* However, in accordance with

It seems that unlisted stocks are also subject to market valuation in IFRS etc. )

If foreigners sell stocks ... ?

Well, I often ask,

"If a foreigner sells stock, the stock price will plummet and capital will escape from that country."

It is explanation.

In this regard, in countries where foreign ownership is high,

If these foreign investors sell their shares together and raise their investment funds,

The country's stock price may plummet.

However, what loses it is

Primarily, it is an investor (shareholder) and not the company that issued it.

Of course, the economy deteriorated due to the curtailment of consumption due to the "reverse asset effect" due to the weak stock price,

There may be companies that go bad and go bankrupt due to poor business performance,

If it is a country where cross-shareholding is carried out like Japan once,

The financial situation of a company that has a shareholding due to a low stock price worsens,

There will be an effect.

In addition,

if the stock price falls, the pension fund is managed by domestic stocks.

And institutional investors will lose their value.

There is also concern that the economy will be adversely affected.

However, whether it is a "reverse asset effect" or a "spiral of write-downs on cross-shareholdings,"

Or, "Pension fund write-downs" are all special factors.

Basically, even if the stock price falls,

Unless the company is borrowing money from markets or banks,

The company will not go bankrupt as a direct cause of the "stock price".

Therefore, from the stock market, "capital flight"

If there is a (capital flight), don't worry about it.

Causality is important

In other words, "a foreign investor sold shares in some country"

It's hard to imagine that the country's economy would collapse because of that.

But if there is something else that has spilled over into the stock market, the story is different.

For example, recently A plague like the Wuhan Pneumonia virus (Corona 19) riot is a typical example

But if the plague spreads to the stock market,

Not only the stock market but also the bond market

(Or the bond with the name of the country in the foreign bond market) or the forex market

Even it could spread.

Also, if the country has been designated as subject to economic sanctions by the international community

(For example, the 2014 case of Russia)

The fact that `` eating economic sanctions '' is on the stock market, exchange market, bond market

There can be cases where it spreads at the same time.

However, such a case

"The low stock prices and the economic collapse occur simultaneously for the same cause."

After all, "Economy collapses because stock prices have fallen,"

It should be noted that this is not the case.

Funding is important!

What's really scary

`` Escape of funds from interest rate markets ''

Then, when a phenomenon called "capital flight" occurs,

What is really to worry about?

It is " flight of funds from interest rate markets ".

Speaking of newspapers and television as "markets"

Because it tends to report “stock market” conditionally,

Many people misunderstand that "market" means "stock market"

But the "market of financial products" is not just the "stock market".

There is an "exchange market" and an "interest market" .

Of these, the “foreign exchange market”

There are still many people who have heard.

Often in news programs,

"Today's Tokyo foreign exchange market closes at $ 110.60 to $ 62. "

It is reported that the "foreign exchange market" is like TSE

There is no “exchange”.

What we are reporting is the indicative price of the "interbank market".

Also,

Recently, more and more individuals are conducting foreign exchange margin trading (FX),

Wellington time, Toronto time

You may be familiar with such terms.

However, rather than the "foreign exchange market",

There are more minor (and vitally important) markets.

That is the "interest rate market" .

For example,

"Liquid bond market" such as "Government bond market", municipal bond, FILP agency bond,

"Credit markets" such as corporate bonds and credit default swaps (CDS),

"Swap market" such as interest rate swaps

In such a case, huge transactions are made every day,

In short-term interest rates, the repo (repurchase transaction) market,

A call market has been established.

Repurchase transaction

Originally, transactions where securities, such as bonds and stocks, are purchased under repurchase conditions

In Japan, money (cash) is pledged as collateral, especially in bond lending transactions

"Cash-secured bond lending transactions (bond repo transactions)"

Repurchase transaction

This is a loan agreement (lending transaction) for a bond secured by cash.

One of the parties (the lender) lends the bond to the other (the borrower)

In return, we receive a security deposit,

After a certain period of time, the same amount of bonds will be returned and the collateral will be returned

Call market

In a market where financial institutions exchange short-term funds,

One of the markets that make up the interbank market

Short-term lending and lending opportunities for financial institutions

Interbank market

Refers to the interbank market,

A market for short-term funds, bills, and foreign currencies that only banks can participate in.

There is no physical market, trading by phone or online

Especially in the Japanese government bond (JGB) market,

Institutional investors are the billions to tens of billions of dollars in a single transaction

It trade in units of

In short-term interest rates, that's what drives hundreds of billions and hundreds of billions of dollars

In a world where the profits of a tanshi company are tens of thousands of yen, the profits are incredibly thin.

(By the way, from the point of view of bond market officials,

Assuming that at most a trillion yen of bonds are being sold,

There is no way to be wary that "1 trillion yen of Japanese government bonds will flood the market!"

関の山(Seki-no-yama)

will be the one that yield-hungry investors will appreciate. )

関の山(Seki-no-yama)

The limit that you can not do any more.
Well, or that's up to that estimate.

No matter how hard I try, I could only that.

In addition, the interest rate market of yen and foreign currency and foreign exchange market are linked,
Cross Currency Swap
(※ " Cross Currency Swap" , not " Bilateral Currency Swap" )
And basis swap, exchange swap (so-called FX swap),
Developing country currencies are also closely related to markets such as NDF.

What is really scary is the cash flow risk

And "a really scary capital flight"

It's the risk of not being able to borrow money from abroad (rather than stock).

That said, when it comes to Japan, capital flights from Japan

You can think of it as a probability that a meteorite will fall overhead from the sky.