Morgan Stanley: Global equity hedge funds stage a rare decade of de-risking

The latest monitoring report released by Morgan Stanley's prime brokerage team on Tuesday shows that global equity hedge funds staged the most intense de-risking action in over a decade during the first week of November, with a widespread wave of liquidations spreading across global markets.

In the Asian market, hedge funds are controlling risk exposure through a dual strategy of reducing long positions and increasing short positions, a phenomenon particularly pronounced in the tech-heavy South Korean market. The selling pressure is mainly driven by fundamental stock-picking funds, while multi-strategy, macro, and quantitative funds are taking the opportunity to close out previous short positions, indicating a clear divergence in institutional strategies.

Goldman Sachs data shows that the total leverage of U.S. fundamental long-short funds plummeted by 8.7 percentage points in a single week, marking the largest decline since the outbreak of the pandemic in March 2020; however, from the perspective of all-inclusive PB clients, the overall total leverage remains as high as 314.2%, placing it in the 85th percentile over the past year. Dubravko Lakos-Bujas, Global Market Strategy Chief at JPMorgan, believes that this round of adjustment is essentially a concentrated deleveraging by momentum traders, with capitulation-style selling already quite deep, and technical indicators suggest that short-term oversold and bottoming signals are accumulating.