Asia-focused hedge funds, including WT China Fund and Keystone Investors are suffering a sharp reversal in fortunes this month after riding a powerful rally in artificial intelligence and semiconductor stocks through the first half of 2026, according to a report by Bloomberg.
The report cites unnamed people familiar with the matter as revealing that WT China Fund, managed by Wang Tongshu, was down about 17% for July through 17 July. That followed a gain of roughly 120% during the first six months of the year.
Keystone Investors’ hedge fund meanwhile, was down approximately 12% over the same period, having gained 63% in the first half, according to unnamed people familiar with the returns.
Other Asia-focused managers, including FengHe Asia, CloudAlpha Capital Management and Indus Capital Partners, have also experienced declines this month. Eagle’s View Capital Management has been an exception, with its Japanese convertible-bond arbitrage strategy benefiting from the increase in market volatility, according to manager Chris McGuire.
Morgan Stanley prime brokers said in a 21 July note that hedge fund performance across Asia had been pressured by renewed volatility in crowded AI-related positions, a reversal in momentum strategies and geopolitical uncertainty.
Selling pressure has eased in recent sessions and some funds have begun to recover. However, the scale of the losses across the industry may be greater than currently visible because many regional hedge funds do not provide intra-month performance updates.
Several of the trades that helped drive hedge fund gains earlier this year have suffered steep declines. South Korean memory-chip maker SK Hynix has fallen about 28% this month, while Japanese rival Kioxia Holdings has also dropped around 28% and is trading roughly 40% below its peak.
Hedge funds had built large positions across the AI supply chain, betting that the technology’s shift from training models to commercial applications would support sustained demand for semiconductors, energy storage, cooling systems and server components.
Managers also targeted Chinese AI companies, including MiniMax Group and Z.AI, as investors bet on Beijing’s efforts to compete with the US and develop lower-cost AI models. Z.AI shares, which fell by more than half earlier in July, have since recovered some ground alongside a broader rebound in some fund performances.
The AI supply chain was a major contributor to the outperformance of Asia-based hedge funds in the first half. Global semiconductor stocks were identified as the most crowded trade in a Bank of America survey of fund managers released earlier this month.
The concentration of positioning has also made it more difficult for managers to add to some of their favourite trades. Global banks have raised financing costs for hedge funds seeking to increase leveraged exposure to stocks including SK Hynix and Samsung Electronics through swaps, while lenders have limited the capacity available for new positions.
Investors are also increasingly focused on the spending plans of major cloud providers, or hyperscalers, including Microsoft, Meta Platforms and Amazon, ahead of the companies’ upcoming earnings reports.
The unwinding of leveraged single-stock exchange-traded funds and positions held by retail investors has added to market volatility.
DWS has downgraded the global semiconductor sector to neutral from positive, arguing that expectations around rising hyperscaler demand and the barriers to entry facing new competitors have been largely reflected in valuations.
The investment manager said the key question for investors was increasingly whether current earnings growth and profit margins could be sustained after the sector’s strong rally.
