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Medium term
Trade view / 12 October 2016 at 9:38 GMT

Tokyo real estate plunge would hit Mitsubishi Estate – #SaxoStrats

Head of Equity Strategy / Saxo Bank
Instrument: 8802:xtks
Price target:
Market price:

One might say we are already late for the party, but we believe that Japanese real estate could weaken further. The five biggest real estate stocks in the TOPIX 500 Index are all down between 15-30% YTD and the biggest one – Mitsubishi Estate – is down 26%

Mitsubishi Estate weekly share price the past five years
Mitsubishi Estate share price
Source: Saxo Bank 

The main driver for why this downwards trend could continue is the latest change at the Bank of Japan aiming at targeting the yield curve. This change in monetary policy has already lifted Japanese mortgage yields but should they normalise back to around 1.6-2% then many analysts are indicating that real estate prices could be down as much as around 25% by 2018. This would obviously hurt stocks such as Mitsubishi Estate.

Japan's benchmark mortgage rate
Japan mortgage yield
Source: Bloomberg 

Management and risk description

We're implementing this trade with a tight stop at 1,945 which is just above the high from September 21. This means the stop is around 4.5% away which is not much, but the reason for this is that we are betting on the trend continuing and don't wan't to be caught on a big mean reversion trade.

The trade lot size set by the Tokyo Stock Exchange is 1,000 shares equivalent to around $18,000 based on the current USDJPY and share price in JPY.


Entry: buy at market (latest price is 1,857.50) 

Stop: 1,945

Target: 1,500

Time horizon: It all depends on whether the downwards trend continues or not. With a tight stop this trade could end in less than a week, but if the trend continues this trade could last 3-6 months.

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
Ramug65 Ramug65
Buy at market (latest price is 1,857.50)
Target: 1,500???
Karen Holander Karen Holander
This comment has been redacted
yakcay yakcay
Peter was suggesting a short. I think there is an error in the Parameters. However, if you indeed bought by mistake, you are better off, since the stock price has been increasing since the trade. It is now close to 1910. Peter, could you please address this?
Ramug65 Ramug65
After reading / reviewing the details I understand it is short, but the ENTRY:BUY is confusing, that too after watching the uptrend. Unfortunately no reply from Peter.
yakcay yakcay
It seems we are indeed late to the party!


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