From the middle of 2015 through the start of this year Middle East investors and traders have moved into the currency markets, in large numbers, to hedge their local equities investments primarily buying the Japanese yen.
From December to until February this year global equities have experienced a serious of knee-jerk reactions which have not been proportionate to the market data or conditions. The triggers for the moves has been either oil or disappointing data from China supporting concerns over a global slowing down. Global equities lost more than US$4 Trillion moving them into bear market status, which has only just ended as some stability has returned to the oil market. For some time there has been an indirect correlation between the TASI Index in Saudi Arabia and the dollar yen. The TASI is the largest market in the Middle East, by volume, and it indicative of the behavior of the other main exchanges. When the TASI index reached it high of last year around 9800, the USDJPY was also at the top of its recent range at 125.63. From April 2015 the TASI lost around 30% from its value, reaching its lowest point in August of the same year. Through the same period, the USDJPY dropped from 126.90 to as low as 116.18, which is a decline of -7.52%.
The TASI advanced slightly for only two and a half month until Mid-October, trading around 7800, while USDJPY edged higher towards 123.80 again. In December when the oil and sentiment driven market moves started the Japanese Yen was trading around 123.50 and TASI was hovering around 7500. When the December OPEC meeting was inconclusive the TASI dropped sharply falling more than 27% until the end of January reaching 5348. During the same period, the USDJPY lost more than 10% even after the BoJ introduced negative rates as safe haven bids remained on the rise.
At ADS Securities, from December 2015 until February of 2016 our yen trading volume increased by more than 30% compared with the same period the year before, and our GBPJPY volume jumped by 148% and finally AUDJPY increased by more than 57%. This is a clear indication of the changing structure and the maturing of the Middle East market. Investors are now starting to use FX as a multipurpose investment tool, which is linked to the ongoing increase in volumes from the region.