By Summer Zhen
HONG KONG (Reuters) – Global hedge funds dumped stocks from China and broader emerging markets while buying U.S. stocks in a sharp rotation in October ahead of the U.S. election, Goldman Sachs said.
China, where stock markets rose 20% last month, boosted by a series of stimulus measures, has now seen heavy outflows this month, according to Goldman’s prime brokerage team. China no longer publishes up-to-date data on foreign flows into the mainland market.
Goldman Sachs estimates that hedge funds have recovered nearly 80% of their maximum cumulative purchases of Chinese stocks as of Oct. 23, the prime broker team said in a note.
“This month’s net sales in emerging markets are among the largest on record, led by selling of Chinese stocks,” Goldman Sachs said.
The pullback comes as Chinese markets have also retreated from peaks, as investors are disappointed by the lack of detail surrounding Beijing’s stimulus promises and as the possibility of a Donald Trump presidency increases tariff risks.
Other emerging markets, including India, Taiwan, South Korea and Latin America, have also been sold off by hedge funds so far this month, Goldman Sachs added.
The MSCI China index lost 4% this month, after a sharp 23% rise in September – its best monthly run in 22 months. The MSCI Emerging Markets Index is down 3% so far in October, compared with a 6.5% gain in September.
Instead, hedge funds returned to U.S. stocks for the first time in six months as solid jobs data and corporate profits offset fears of a recession, the bank said.
In addition, to prepare for rising volatility in the tight US presidential race, Goldman Sachs said hedge funds as a whole reduced leverage over the past week and into October, with stock-pick funds’ gross leverage near its lowest level in 12 months reaches. more cautious attitude.
On average, global stock-picking hedge funds are up 0.6% in October and up 11.9% so far this year, while systematic long/short equity funds are down 0.9% in October but up 18% this year .7% have increased, according to the note.
(Reporting by Summer Zhen, Editing by Tom Westbrook and Shri Navaratnam)
