The capital of Japan would not sit idly by and resisted tenaciously throughout February.
In their view, the current decline was merely temporary. Apart from the unfavorable news, the overall Japanese economy was still in good shape, and there was no information to suggest that the economy was in decline.
However, this situation lasted for less than a month. Soon, the Japanese stock market continued to fall.
This decline began on February 19th. After two consecutive red days, on the third day, the Japanese index plummeted by more than a thousand points, with a decline of 3.15%. In the following trading day, the bulls failed to counterattack, leading to further declines in the next two trading days. The Japanese index continued to fall, dropping by 2500 points over two trading days. Although the last two trading days of February saw a slight recovery, successfully recapturing 1500 points, the tone for March had already been set.
March, the cruelest month, was undoubtedly a period of extreme hardship and disaster for many Japanese companies and investors. The index fell from 34,587 points to 28,002 points by early April, a total drop of over 6,000 points. Compared to the peak of 38,957 points, the difference was over 10,000 points, and the market value had decreased by more than 30%.
It seemed that the bubble had been largely squeezed out, and perhaps the current market value could truly reflect the state of the Japanese economy.
At the beginning of January, out of concern for the stock market, many capital investors withdrew and sold a significant amount of Japanese stocks, causing the market to fall. This decline, in turn, accelerated market panic, leading to more stock sales. In this situation, short selling conditions greatly improved, and some capital could recklessly short the market, further accelerating the decline.
This was like a vicious cycle: the decline caused fear, which led to more selling, and then more decline.
It was all about confidence.
It's worth noting that some of the international speculative capital that withdrew from the Japanese stock market did not leave Japan but instead invested in the then-booming real estate market, setting the stage for the future collapse of the real estate market.
Strangely, the Japanese government's attitude toward the stock market decline was ambiguous, and they rarely expressed opinions on the matter in public. Perhaps, to some extent, they were even satisfied.
Indeed, the bubble problem that politicians had long been worried about had been resolved, and their frequent interest rate hikes in the previous year had not been in vain. International speculative capital was also satisfied, as they had made money by being bullish on the stock market and then timely withdrew, making substantial profits in the futures market.
The ones who suffered were Japanese companies and ordinary investors. Compared to large enterprises, ordinary investors might have suffered even more.
However, not all ordinary investors suffered significant losses. It's important to note that many of them might have entered the market before October 1988, when the index was as low as 26,701 points, lower than the current 28,002 points. Therefore, these people might have still made a profit.
So, who lost money?
Still, ordinary investors!
The index mentioned here is a weighted sum of many stocks, not a single stock. In fact, many investors did not follow the principle of diversifying risk, and their capital was not sufficient to buy the same proportion of component stocks as the index. When the market rose, their stocks might rise, but when the index plummeted, their stocks often fell more sharply than the component stocks, given the performance of the component stocks.
After successfully capturing the wave of the Japanese stock market collapse, Zhong Shi promptly liquidated all his positions in April. After all, he was not very familiar with the K-line chart of Japan at that time. After leaving the market, he roughly estimated that he had successfully earned over $600 million in the Singapore Nikkei Index over the past few months.
All of this was based on a single limited position. In fact, the brokerage seat of Afore Far East was almost entirely occupied by Zhong Shi's funds during this period.
Everything seemed perfect.
In May, European and American capital in Singapore began to build positions. They made a fortune over these three months, and capital that had tasted enough sweetness would not miss any opportunity to make a profit. Someone had roughly estimated that if these short sellers had maintained a heavy position throughout this period, their profits might have exceeded $100 billion.
Of course, this was under ideal conditions. In reality, due to factors such as the lack of corresponding counter-parties, insufficient margin for bulls, and increased margin requirements by the exchange to balance both sides, the profits made by these funds were not as much as imagined. Even so, these funds still swept away $3 to $4 billion in profits.
As the main force of the short sellers, Jim and his team made another $800 million.
The only flaw was that the $100 million they privately operated was completely wiped out, quickly becoming a small wave in the vast ocean, disappearing without a trace.
Jim, who had cautiously misappropriated client funds, narrowly escaped a major disaster. He lost $20 million in the futures market and did not dare to operate the remaining $40 million. In mid-March, he sent a notification to his clients, announcing that he would return all the funds, though only 80% of the original amount. Most investors were still very satisfied, as they were grateful for the stop-loss in the Japanese stock market at that time.
Jim planned to focus more on the over $10 billion in funds. However, soon, the control of these funds was reclaimed by the consortium behind them. After working hard for more than half a year, they naturally received a substantial reward, giving the team $100 million in cash.
Each of these temporarily assembled traders received about $10 million. Most of them chose to continue operating in the Nikkei Index rather than return to their original investment banks. The profits they had made in this period exceeded what most of them could earn in a lifetime, making the choice to go solo inevitable.
These traders quickly invested in the Nikkei Index futures for May, and they soon realized how fortunate they were to join a great battle. Starting in April, the Japanese index began to recover, thanks to the impressive economic data for the first quarter. The Nikkei Index finally stopped its decline and began a three-month rally, reaching a peak of 33,344 points, a scenario that did not reappear in the first three months of the year.
Most of these traders bet on the wrong direction and quickly lost a significant amount of their funds. Later, some of them returned to the West with the little money they had left, while others began to go long.
As for Maxim, the private deal he had with Jim was nullified due to the dissolution of Jim's fund. After receiving $10 million, he chose to travel the world and observe which market offered greater opportunities.
Jim himself, like most others, fully invested in the Nikkei Index market in Singapore. However, he soon realized that the market had completely changed from when he operated it. As a single investor, his influence on the market was negligible, and he could no longer feel the power he once had. Soon, he lost $5 million in the trading days of April 18th and 19th due to betting on the wrong direction.
From then on, Jim disappeared from the streets of Tokyo, and he was rarely seen among the foreigners living there. It wasn't until 1997 that Jim reappeared.
As for the funds, while some continued to operate in the Singapore market, most returned to Europe and America, where they were broken down and became the first-quarter profits of various investment banks, funds, and banks. Of course, the capital was also generous, issuing substantial checks as rewards to the analysts and traders who had contributed during this period.
Stanley Company, for example, gave generous cash rewards to some of its derivatives traders. Since the company did not allow checks exceeding $100,000, some traders received several envelopes. In that era, even partners received only a few million dollars in annual bonuses.
These multi-million dollar rewards strongly stimulated a young man working in the clearing department at Stanley Company. Feeling that his prospects at Stanley were limited, he was strongly motivated by the money and switched to a historic European bank to work in securities trading.
Soon, due to his outstanding performance, he was sent to Asia to oversee the bank's operations there. Later, he made a significant impact in the global financial community, directly causing his employer to go bankrupt!
Moreover, due to his actions, the Singapore Exchange lost its dominant position in Nikkei Index futures, and it was no longer the first choice for investing in the Nikkei Index.
He was Nick Leeson, the future King of the Nikkei.
(In fact, Nick Leeson left Stanley Company in 1989, but the year was slightly adjusted for the needs of the novel.)