Hedge funds ramped up their bearish positions on Japanese stocks at the fastest rate in over five years, with the surge in short-selling during between 2 August and 8 August coinciding with the Nikkei’s worst performance since Black Monday in 1987, according to a report by Reuters.
The report cites data from Goldman Sachs as highlighting that during this period, equity long-short hedge funds increased their short positions by 1.7 times for every long position they sold.
The steep decline in Japanese stocks on 5 August was fuelled by economic concerns and the unwinding of a widely held yen trade that had been financing investments in Japanese equities, leading to a broad market sell-off.
Over the five trading days ending 8 August, portfolio managers net sold Japanese stocks on four occasions, with Tuesday, 6 August being the only day of net buying. Goldman Sachs noted that hedge funds’ net exposure to Japanese equities dropped to 4.8% by Thursday, down from 5.6% the previous week.
As global market turmoil continued, hedge funds maintained their bearish stance on global equities for the fourth consecutive week, increasing their short positions, the bank added.
According to Goldman Sachs, in terms of performance, global equity long-short hedge funds saw a decline of 1.34% for the week amid the market downturn, while systematic long-short funds posted a modest gain of 0.77%.
