Once-in-a-decade de-risking wave: Global equity hedge funds accelerate their retreat in November.

Morgan Stanley’s Prime Brokerage team stated in its latest monitoring report released Tuesday that global equity hedge funds carried out the most dramatic de-risking action in over a decade during the first week of November. A broad-based liquidation wave is spreading across global markets. In Asian markets, hedge funds are cutting risk exposure via two-way operations: reducing long positions and adding put shorts. This phenomenon is particularly prominent in the tech-heavy South Korean market. Selling pressure is mainly driven by fundamental stock-picking funds, while multi-strategy, macro and quantitative funds took the chance to cover their existing short positions, showing a clear divergence in institutional strategies. On the other hand, data from Goldman Sachs indicates that deleveraging has not been fully unwound. The gross leverage of its US fundamental long-short funds plunged 8.7 percentage points in a single week, the largest drop since the March 2020 COVID-19 outbreak. However, for full-scope prime brokerage clients, overall gross leverage remains as high as 314.2%, sitting at the 85th percentile of the past year, a high level. JPMorgan Chase’s assessment is more positive. The bank’s Global Head of Market Strategy Dubravko Lakos-Bujas argues that this round of adjustment is essentially concentrated deleveraging by momentum traders. Currently, "capitulation selling has gone quite deep," and technical signals show short-term oversold and bottoming signs are accumulating.