Hedge Funds Shift Sectors

According to a report from Goldman Sachs, hedge funds (HFs) are moving away from sectors like Information Technology, Energy, and Financials, and are instead investing in Consumer Discretionary, Materials, and Consumer Staples.

Energy Sector Decline

The Energy sector has experienced continuous selling pressure. Hedge funds have net sold U.S. Energy stocks for five weeks straight, mainly driven by short sales. “This week’s short selling in the sector was the largest in over 5 years,” with short sales surpassing long buys by a significant margin of 6.4 to 1. Consequently, Energy’s share of overall U.S. net exposure has fallen to 2.3%, down from a year-to-date high of 3.3% recorded in mid-August.

Prominent Developments in Asia

A significant regional trend has emerged in Asia, where developed markets (DM) and emerging markets (EM) have experienced the largest net buying in over a decade, primarily led by China and Hong Kong. Goldman Sachs noted, “Asia (both DM and EM combined) was the most net bought region on our Prime book this week and saw the largest net buying in over 10 years.” This buying trend was mainly driven by long purchases, with short covers contributing to a lesser extent.

Stock Activity

Most of the activity involved single stocks and macro products. Chinese equities recorded their largest weekly net buying on Goldman Sachs’ books, while Hong Kong saw significant investments, mainly in macro products rather than individual stocks.

The surge in interest in Asian equities follows recent measures introduced by China to address the broader economic slowdown. On Monday, Chinese stocks continued to rise, with mainland equities on pace for their most substantial monthly performance in nearly a decade. Specifically, the mainland benchmark indices began the week positively after achieving their best weekly performance in almost 16 years. The Shanghai Shenzhen CSI 300 blue-chip index increased by over 6.22%, while the Shanghai Composite Index rose by 5.7%, and Hong Kong’s Hang Seng Index gained 3.34%.