Japan-focused hedge funds just experienced their worst daily losses ever, erasing a whole year’s gains in just three days. The turmoil started on Monday with stocks plummeting 12%, which Goldman Sachs called a historic low.
Despite the massive sell-off, investors didn’t just pull out; they also opened new short positions, betting the market would fall even further.
Japan’s Hedge Funds Hit by Historic Losses
Japan’s hedge funds have been slammed with the worst daily losses ever recorded by Goldman Sachs. This catastrophe struck right after a shaky U.S. jobs report and an unexpected rate hike by the Bank of Japan last week.
The triple-hit of bad news wiped out a year’s worth of gains for these funds, leveling their performance to a disappointing zero. “Monday’s shock was unprecedented,” confirmed a Goldman Sachs analyst in a recent note.
The chaos began with Monday’s trading session where Japanese stocks plummeted by 12%, the largest single-day drop on record for the region. “This was more than just a bad day; it was a historic downturn,” the analyst added.
Over just three trading days, Japan-focused funds dipped by 7.6%, with Monday alone accounting for a 3.7% loss.
Japanese Equities Hit Harder Than 1987 Black Monday
As global markets reeled, Japanese equities experienced a dramatic decline, surpassing the infamous losses of 1987’s Black Monday. The sharp drop intensified fears of a potential U.S. recession, prompting investors to offload riskier assets and heavily bet on possible rate cuts by the Federal Reserve to stabilize the economy.
This sell-off wasn’t a sudden reaction but a culmination of ongoing concerns. According to Goldman Sachs, hedge funds had been dumping Japan-related assets at the fastest rate since the COVID-19 pandemic. Despite the massive sell-off, overall exposure to Japan remained relatively unchanged. Instead, investors shifted strategies by covering their long positions and opening new short positions to profit from the downward trend.
On the previous Friday, hedge funds had been particularly active in Japanese markets, with a significant increase in both buying and selling. “We saw a substantial uptick in trading activity, with a heightened focus on Japan,” said a Goldman strategist.
The majority of the sales involved index and exchange-traded fund products, which accounted for two-thirds of the selling activities. Technology and industrial sectors experienced the largest net sales. Despite the market’s instability, Friday’s positions in Japan remained near four-year highs, highlighting the volatile yet appealing nature of these investments.
Important: Please note that this article is only meant to provide information and should not be taken as legal, tax, investment, financial, or any other type of advice.
