Morgan Stanley: Rare De-risking Action by Global Equity Hedge Funds in a Decade

Morgan Stanley's prime brokerage team released a monitoring report indicating that global equity hedge funds experienced the most intense de-risking action in over a decade during the first week of November, with a wave of liquidations spreading across global markets. In the Asian markets, hedge funds managed risk exposure through a dual strategy of reducing long positions and increasing short positions, particularly standing out in the tech-heavy South Korean market. The selling pressure was primarily driven by fundamental stock-picking funds, while multi-strategy, macro, and quantitative funds took the opportunity to close out previous short positions, showing a clear divergence in institutional strategies. According to Goldman Sachs data, the total leverage of U.S. fundamental long-short funds plummeted by 8.7 percentage points in a single week, marking the largest drop since the outbreak of the pandemic in March 2020; however, the overall total leverage remains high at 314.2%, placing it in the 85th percentile over the past year. The global market strategy head at JPMorgan believes that this round of adjustments is essentially a concentrated deleveraging by momentum traders, with the current capitulation-style selling being quite deep, and technical indicators show that short-term overselling and bottoming signals are accumulating.

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