Asia-focused equity hedge funds are heading for their biggest monthly drawdown on record, a Goldman Sachs note showed, as a broad AI stock rout wiped out much of the gains from crowded bets in the sector.
Asia-focused fundamental long-short funds have fallen 18.6% on average this month through July 28, Goldman Sachs said in a prime brokerage note sent to clients this week.
These funds were among the world's top performers in the first half of the year by betting early on AI hardware leaders including South Korean chipmakers SK Hynix (000660.KS), opens new tab and Samsung Electronics (005930.KS), opens new tab. Some pocketed gains of more than 100%.
Now there is a sharp reversal, giving back 21 percentage points of their year-to-date gains since peaking at 40% on July 22, Goldman said. Crowded AI bets that fueled first-half gains are now "driving outsized month-to-date drawdown," Goldman Sachs said, adding those funds with higher exposure to AI themes have suffered steeper losses.
Asian semiconductor stocks tumbled this week, with South Korea leading the regional selloff, as investors increasingly questioned the returns on massive AI spending and leveraged positions unwind.
South Korea's benchmark Kospi tumbled nearly 11% on Tuesday in their worst session in about five months. Hedge funds rushed to take profits and lower risks amid market turmoil. Asian hedge funds have reduced exposure for eight straight trading days as of July 27, with "five-day cumulative de-grossing" the largest on record, according to Goldman Sachs.
Selling has been focused on Taiwan, Korea, Japan and China recently, the bank said. "In market cap terms, this is the biggest unwind we’ve ever seen," said Vikas Pershad, a portfolio manager for Asian equities at M&G Investments.
Significant trading volumes amplified the move on the way up and have accelerated the decline on the way down, he said.
