We believe that in case of a strong distress the Nikkei index can suffer the most. Why not European equities? We believe that European equities have already suffered from the recent turmoil while the Japanese index has been heavily unaffected and has recently rallied dramatically, completely diverging from fundamentals whose forecasts have continuously declined recently. Therefore, we believe the latter is prone for a correction that may be significant in case of an unsolved Cyprus situation. We suggest to hedge (using the S&P 500) against the overall sentiment and in order to keep an exposure to the US equity market.
Be careful in case of a sudden improvement of the European situation as the best move would be to buy financials stocks that have been heavily affected by the recent issues.