TOKYO -- As investors who bet against Japan's rising stock market count their losses, they can reflect on the biggest factor in the miscalculation: U.S. President Donald Trump.
Last month's partial trade deal between the U.S. and China sparked a relief rally among institutional investors. But for Japan's famously contrarian retail investors, memories of a sharp Tokyo market sell-off last autumn remain fresh.
They have seen the rug pulled out from Japanese stocks by one round of U.S. tariffs after another. This trauma manifested itself in skepticism toward the rally and doubts over Trump's apparent change of heart on trade with China.
Short selling on the Tokyo Stock Exchange -- wagers against the market -- swelled in October.
"The U.S.-China problems are going nowhere," said a 40-something Tokyo area man who has played the stock market for over a decade.
"Stocks may be rising now amid a lull in comments from Mr. Trump, but they'll fall sooner or later."
Trading on such logic has not proven a winning course, however. A gauge of whether margin traders' negative bets on Japanese stocks are winning or losing stood at the lowest in more than two and a half years as of Oct. 25.
On Friday, the benchmark Nikkei Stock Average fell more than 200 points to a session low before paring its losses to close down 76 points, or 0.33%. Unwinding of short positions drove this reversal, said Yoshinori Ogawa, a strategist at Okasan Securities.
Both shares bucked Friday's market downturn. Both also were on the list of stocks as of Thursday for which short sellers pay a borrowing fee, base on supply and demand, when placing negative bets. All this suggests short sellers were willing to take a loss to exit their negative positions on this stocks.
"Last autumn's stock plunge has left a shadow on invidiuals' psyche," Makoto Sengoku at Tokai Tokyo Research Institute said of retail investors. The Nikkei Stock Average tumbled more than 5,000 points in the last three months of 2018. Many investors were forced to close positions to cut losses.
Meanwhile, the general view among institutional investors is that "the U.S.-China issue won't get any worse than this," in the words of Satoshi Nagami at Sumitomo Mitsui DS Asset Management. With the 2020 presidential election looming, many believe Trump cannot afford to take a policy move that would hurt the U.S. economy, and easing of the Sino-American standoff would keep the market strong.
Pessimism is also wearing off among overseas investors, encouraged by the partial U.S.-China trade agreement and emerging signs of improvement in some leading economic indicators. Swiss asset management company Pictet has upgraded its stance on stocks to neutral from slightly underweight.