Asia-focused equity hedge funds are on track to record their largest monthly losses on record after a sharp sell-off in artificial intelligence-related stocks triggered a rapid unwinding of one of this year’s most profitable investment themes, according to a report by Reuters citing a note from Goldman Sachs.
The bank’s prime brokerage division said Asia-focused fundamental long-short hedge funds were down an average of 18.6% in July up to 28 July, as investors rushed to cut exposure to AI-linked positions across the region.
The drawdown marks a dramatic reversal for managers that had been among the hedge fund industry’s strongest performers during the first half of 2026. Many funds generated exceptional returns by building positions in semiconductor and AI hardware companies, including South Korean technology leaders SK Hynix and Samsung Electronics, with some strategies reportedly returning more than 100%.
Goldman estimates the sector has surrendered around 21 percentage points of its year-to-date gains since performance peaked in late July, as heavily crowded AI trades rapidly reversed.
The investment bank said funds with the largest exposure to artificial intelligence themes have suffered the steepest losses, reflecting the speed at which investors have exited positions following growing concerns over AI valuations and the sustainability of spending by major technology companies.
The correction has been particularly severe in Asian semiconductor stocks, with South Korea emerging as one of the hardest-hit markets. The country’s benchmark Kospi index experienced its sharpest single-day decline in several months during the sell-off, while technology stocks across Taiwan, Japan and China also came under heavy pressure.
Prime brokerage data indicates hedge funds have been reducing gross exposure across Asian equity markets for eight consecutive trading sessions, with Goldman describing the recent five-day deleveraging as the largest on record. Selling has been concentrated in Taiwan, South Korea, Japan and China, where many investors had accumulated significant AI-related positions.
The rapid unwinding reflects how crowded positioning can amplify market moves when sentiment shifts. As prices declined, hedge funds accelerated profit-taking and reduced leverage, adding further selling pressure to already weakening markets.
Market participants said the scale of the reversal has been unprecedented. Vikas Pershad, portfolio manager for Asian equities at M&G Investments, described the retreat from AI positions as the largest unwind he has seen in market capitalisation terms, with elevated trading volumes contributing to both the rally earlier this year and the subsequent correction.
