Hedge funds have cut most Chinese stock purchase since late September, says Goldman
· CNA · JoinHONG KONG: Global hedge funds dumped China and broader emerging markets shares while buying US equities in a sharp rotation in October ahead of the US election, Goldman Sachs said.
China, where stock markets surged 20 per cent last month boosted by a raft of stimulus policies, has now seen heavy outflows this month, according to Goldman's prime brokerage team. China no longer publishes timely data on foreign flows into the mainland market.
Goldman Sachs estimates that hedge funds have clawed back nearly 80 per cent of the peak cumulative buying in Chinese equities as of Oct 23, the prime brokers team said in a note.
"This month's net selling in emerging markets is tracking to be among the largest on our record, led by selling in Chinese equities," Goldman Sachs said.
The retreat comes as China's markets, too, have pulled back from peaks as investors have been disappointed with the lack of details around Beijing's stimulus promises and as the possibility of a Donald Trump presidency raises tariff risks.
Other emerging markets, including India, Taiwan, South Korea, and Latin America were also sold by hedge funds so far this month, Goldman Sachs added.
MSCI China index lost 4 per cent this month after a sharp 23 per cent rise in September - its best monthly run in 22 months. MSCI emerging markets Index, meanwhile, dropped 3 per cent so far in October, compared to a 6.5 per cent September gain.
Hedge funds instead rotated back to US equities for the first time in six months as solid job data and corporate earnings offset recession fears, the bank said.
Additionally, to be prepared for the increasing volatility amid the close US presidential race, Goldman Sachs said hedge funds as a whole lowered leverage in the past week and in October, with stock picking funds' gross leverage level near 12-month lows, suggesting a more cautious stance.
On average, global stock picking hedge funds are up 0.6 per cent in October and 11.9 per cent so far this year, while systematic equities long/short funds are down 0.9 per cent in October but up 18.7 per cent year-to-date, the note said.
Sign up for our newsletters
Get our pick of top stories and thought-provoking articles in your inbox
Get the CNA app
Stay updated with notifications for breaking news and our best stories
Get WhatsApp alerts
Join our channel for the top reads for the day on your preferred chat app