Global equity markets have extended gains following easing geopolitical tensions, with analysts pointing to an additional driver behind the rally: forced short covering by hedge funds after a period of aggressive de-risking, according to a report by Bloomberg citing data from Goldman Sachs.
The report cites figures from the bank’s prime brokerage division as showing that hedge funds increased short positioning sharply in March, with short sales significantly outpacing long buying activity. The move marked one of the most aggressive net selling phases in over a decade, reflecting widespread defensive positioning as markets weakened.
The data suggests managers did not broadly unwind long equity exposure during the selloff, but instead increasingly relied on short positions in indices, ETFs and futures to hedge downside risk. More targeted shorting of individual stocks also featured, though to a lesser extent.
As markets have since rebounded, these defensive positions have come under pressure, with short sellers now facing losses that may be prompting rapid covering activity. That dynamic is widely viewed as amplifying the upside in equities, as buying flows from short covering add fuel to already improving sentiment.
The latest rally has been further supported by improved geopolitical sentiment following a temporary pause in military escalation involving Iran, which has helped stabilise risk appetite across global markets.
Strategists at Barclays have also highlighted the potential for a short squeeze in European equities, noting that a combination of prior hedge fund de-risking, seasonal tailwinds in April and relatively resilient macroeconomic conditions could leave markets vulnerable to sharp upside moves driven by forced buying.
