The EV giant’s stock got caught in a global downdraft triggered by the fast-rising Japanese yen.
Shares of electric vehicle leader Tesla (TSLA -4.43%) were trading lower on Monday, amid global market volatility triggered by a sharp rise in the value of the Japanese yen.
Tesla’s shares were down as much as 12.4% in early trading on Monday, but recovered somewhat; as of 2 p.m. ET, the stock was down about 4%.
Image source: Tesla.
A “carry trade” gone awry drove a sell-off of Tesla and other big tech names
Tesla was one of several big-name stocks to get hit in early trading on Monday. The likely explanation: Investors rushing to close out a “carry trade” that had been very profitable in recent months — but that has abruptly swung the other way in recent days.
Investors had been borrowing money in Japan, where interest rates have been very low, and using it to buy stocks and other assets around the world. A popular version of this trade involved investing the borrowed money in the so-called “Magnificent Seven” stocks, including Tesla.
The problem: Those loans are denominated in yen, and a sharp rate hike by Japan’s central bank last week triggered a big surge in the yen’s value versus the dollar and the euro. That means that carry-trade investors suddenly need more dollars or euros to pay back their loans.
That in turn triggered a big sell-off in high-growth assets around the world, including Tesla stock, on Monday morning.
The stock is recovering, but the volatility may not be over
While Tesla’s stock did recover somewhat by Monday afternoon, that doesn’t mean shareholders are out of the woods. The amount of money being unwound from the carry trade — an estimated $4 trillion — could mean a few more days of market volatility for popular stocks like Tesla and the other Magnificent Seven names.
John Rosevear has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.