The hedge fund landscape experiences continuous transformations, due to shifts in underlying strategies, the assets considered and the constant creation of new funds. Conscious the dynamic nature of this sector, we consider hedge funds as an area worthy of investigation. Hence, we set out to explore and periodically report on the most noticeable trends in this sector.
Below is an overview of the main events that occurred in the first half of December 2023.
The South Korea’s short selling ban leads to a retreat of foreign hedge funds
Participation by global funds in the South Korea’s stock market has declined because of a new ban on short selling. So far in December, foreign investors have represented only 18% of the total market turnover by value, the lowest monthly level of the year, according to Bloomberg’s data.
At the same time, also local long-short hedge funds have experienced a decline in their share of turnover, due to lower incentives to trading as they cannot place new short positions, while retail investors continue to dominate Korean trading. Individual investors have accounted for 71% of turnover in December, up from approximately 60% in October.
Similar reductions in turnover were observed during previous instances of short-selling bans, when South Korea has employed these measures to curb market volatility. In early November the reasons were different: following complaints of unfairness came from retail traders, officials have considered this ban needed to prevent illegal forms of trading tactic. However, they argue that the latest prohibition on short-selling makes price formation more difficult and lowers the market’s perception among international investors and index makers including MSCI Inc.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2023-12-12/short-selling-ban-curbs-foreign-investor-stock-trading-in-korea?srnd=industries-finance
Hedge funds upped bearish bets on the yen
According to a report by Bloomberg, hedge funds significantly increased their bearish positions on the yen, reaching the highest level in 19 months, due to a belief that the currency’s recent rebound is temporary.
Data from the Commodity Futures Trading Commission show that leveraged funds’ net yen shorts increased from 2,833 to 65,611 contracts as of 28 November. This surge in bearish bets has come after Japan’s currency experienced a nearly 4% uptick from its recent low of 151.91 per dollar on 13 November to 146.23 on Monday, its strongest performance since mid-September.
Despite indications from overnight-indexed swaps suggesting the potential end of the Bank of Japan’s negative-rate policy by June, the rise in short positions implies that investors expect the yen to become less valuable, underscoring its short-lived strength. Meanwhile, Japanese life insurers have reduced currency hedging by the most in over a decade, to protect themselves from an extended rebound in the currency, which could adversely affect returns from overseas assets.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/hedge-funds-up-bearish-yen-bets-htoit-highest-level-in-19-months/
Bitcoin surge could mean implications for Hedge Fund shorts
According to a J.P. Morgan’s Positioning Intelligence report, the ongoing rally in Bitcoin (BTC-USD) may spell further losses for hedge fund short positions. Bitcoin is up to an impressive 159.83% year-to-date and by 24.02% only in the last month. The relationship between Bitcoin’s price movements and the performance of hedge fund shorts is not only indirectly linked through risk sentiment but may also be more directly influenced by retail investors.
Both Bitcoin and prices of securities shorted by hedge funds have risen because of the recent rally, but Bitcoin’s gain since early October has outpaced hedge fund shorts, creating a significant gap between the two, that suggests that the rally in Bitcoin could potentially indicate further upside for hedge fund shorts.
Hedge fund shorts tend remain stable when Bitcoin was down or flat, and in instances they increased during such periods, it has been a sign that the shorts were “topping out” often coinciding with more substantial hedge fund de-grossing, that is when funds sell longs and cover shorts, as occurred in early February, June, and July of 2023.
If macro data remains favourable, there is potential for recession fears to fade, which could lead to further upside, especially in riskier market segments where hedge funds tend to hold short positions. According to the report, potential risks to this scenario are poor macro data, a slowdown or reversal in retail flows into year-end, and overall positioning back to being modestly above average.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://seekingalpha.com/news/4044358-bitcoins-price-could-be-more-linked-to-hf-shorts-upside-than-thought-jp-morgan
France planning push to attract more hedge funds to Paris
France is looking to attract more hedge funds and banks to Paris as part of a new plan to raise the standing of the city as a European Union finance hub, according to a report by Bloomberg. The President Emmanuel Macron’s initiative is aiming to build on an initial wave of post-Brexit relocations.
People familiar with the plans said that the government plans to amend some rules and introduce measures as early as next year, but considerations are at an early stage and the exact nature of the changes isn’t yet clear. The new push aims to leverage Paris’s success in attracting major US banks and hedge funds such JPMorgan Chase & Co. and Millennium Management, whose shift from London brought thousands of jobs and improved Macron’s reputation as pro-business reformer capable of the country’s slow-moving economy, despite he lost his parliamentary majority in 2022 elections.
However, the government is seeking to build on a reputation for stability, increasing the attractiveness of the city. Many firms from Asia, the Middle East, Canada and Australia, are planning to move business to Paris, as becoming more active in this region may allow them to increase their partnerships with a growing number of investors and clients.
One of Bloomberg’s sources revealed that several US hedge funds are currently in the process of securing licenses from country’s markets regulator Autorite des Marches Financiers.
This information is based on the articles analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2023-12-08/france-readies-new-push-to-lure-more-banks-hedge-funds-to-paris?srnd=industries-finance and https://www.hedgeweek.com/france-planning-push-to-attract-more-hedge-funds-to-paris/
Hedge funds are challenging new SEC’s regulations on short-selling
Hedge funds are contesting recently approved Securities and Exchange Commission (SEC) regulations that force increased disclosure regarding short selling and related stock lending.
The Managed Funds Association, the Alternative Investment Management Association, and the National Association of Private Fund Managers have filed a legal challenge, arguing that SEC did not adequately calculate the combined financial impact of the rules and that its regulations present contradictory approaches: the agency acknowledges the value of anonymity for short sellers, but at the same time it ask them to expose confidential securities lending and position information.
The SEC defended its challenged regulations in court. Gary Gensler, the agency’s chair, underscored the necessity of these rules to bring more transparency to the $3 trillion securities lending market and to address information asymmetry which can disadvantage some traders.
The SEC’s new rules require private funds to report their short selling transactions monthly, and pension funds, banks and institutional money managers that lend their stocks to report their transactions the next day.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.bloomberg.com/news/articles/2023-12-12/hedge-funds-are-challenging-sec-s-new-short-sale-disclosure-requirements?srnd=industries-finance
The focus of hedge funds shifts from tech stocks to banking and healthcare stocks
According to a report by Reuters in which a new research from Goldman Sachs’ prime brokerage unit is reported, none of the so-called Magnificent Seven tech titans appear in the top ten stocks currently most favoured by hedge funds.
These giants have played a pivotal role in dominating the S&P 500 index and have been the primary resource of returns this year, but today stock-picking hedge funds have switched their attention from technology stocks to financial and medical-related sectors.
Among the top picks we can find stocks of Mastercard and Visa, as well as US healthcare groups United Health, Kenvue, and Humana.
This information is based on the article analysed and reported by ThePlatform’s analysts team: https://www.hedgeweek.com/hedge-funds-pivot-to-banking-and-healthcare-from-tech-stocks/
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