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Toyota Motor Corp (NYSE:TM) has seen its stock price tumble, now trading around $168, which is a significant 33% below its 52-week high of $255.23. In the last six months alone, the stock has dropped by 25%, with a steep 17% decline in the past month.
This downturn in Toyota’s stock comes in the wake of a broader sell-off in Japanese equities, which has resulted in the unwinding of roughly 70% of speculative yen carry trades, according to a J.P. Morgan Equity Strategy report.
Chief stock strategist Dubravko Lakos-Bujas notes that Japanese stocks are now trading at a price-to-earnings ratio of about 13x, below the 10-year average of 15x, and a relative discount compared to developed markets.
The carry trade phenomenon involves hedge funds borrowing in yen at near-zero interest rates to invest in higher-yielding assets. While this strategy can lead to investments in various global markets, including Japanese assets, it doesn’t necessarily involve direct investments in Japanese stocks.
However, when interest rates rise and the yen appreciates, the cost of repaying yen-denominated loans increases, which can trigger a panic-driven exit from investments in Japanese stocks, indirectly impacting companies like Toyota by affecting investor sentiment and stock prices.
However, a recent announcement from the Bank of Japan, indicating no immediate rate hikes during current market volatility, might offer some relief.
Despite these challenges, Toyota’s position remains uncertain. The company’s strategy, which heavily relies on conventional hybrid technology, contrasts with the industry’s shift towards Battery Electric Vehicles (BEVs). Additionally, ongoing certification irregularities raise concerns about Toyota’s compliance, Bloomberg reports.
However, its partnership with BYD Co Ld (OTCPK:BYDDF) (OTCPK:BYDDY) to develop BEVs for the Chinese market reflects an attempt to adapt.
From a technical standpoint, Toyota’s stock is sending strong sell signals. The share price is below the 5, 20, and 50-day exponential moving averages, indicating a bearish trend.
Chart created using Benzinga Pro
The 8-day SMA at $173.55, 20-day SMA at $188.74, and 50-day SMA at $198.21 all position Toyota in bearish territory, according to market indicators.
With an analyst consensus rating of Hold and a price target of $179.41, Toyota’s current trading price at $167.26 raises the question: Is this an opportunity for bargain hunters, or a red flag for cautious investors?
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