Asia-focused stock-picking hedge funds are on course for their worst monthly performance on record after a sharp reversal in artificial intelligence-linked investments erased a significant portion of the gains accumulated earlier this year, according to a Goldman Sachs prime brokerage note sent to clients this week.
The investment bank said Asia-focused fundamental long-short hedge funds had declined by an average of 18.6% this month through July 28. The funds ranked among the world’s best-performing investors during the first half of the year after making early bets on AI hardware companies, including South Korean chipmakers SK Hynix and Samsung Electronics, with some posting returns of more than 100%.
Goldman Sachs said the recent market downturn has wiped out 21 percentage points of the funds’ year to date gains after returns peaked at 40% on July 22, underscoring the speed and magnitude of the reversal.
The bank said the heavily crowded AI positions that drove strong first-half returns have now become the primary source of losses, with funds carrying greater exposure to AI-related investments recording the steepest drawdowns.
The losses have coincided with a broad sell off in Asian semiconductor stocks, led by South Korea, as investors increasingly questioned the returns on massive AI spending while leveraged positions were unwound across the market.
South Korea’s benchmark Kospi index fell nearly 11% on Tuesday, marking its worst single-day performance in about five months.
Goldman Sachs said hedge funds have also been aggressively reducing market exposure, trimming positions for eight consecutive trading sessions through July 27. The bank noted that the latest five-day cumulative reduction in gross positions was the largest on record.
Selling has been concentrated in Taiwan, South Korea, Japan and China, as investors moved to lock in profits and reduce portfolio risk amid heightened market volatility.
Commenting on the scale of the retreat, Vikas Pershad, portfolio manager for Asian equities at M&G Investments, described the sell-off as the largest market-cap unwind he has ever seen, saying the heavy trading volumes that fueled the rally have also accelerated the market’s decline.
Goodness Anunobi
Follow us on:
