BY COMFORT OGBONNA
Hedge funds sharply increased their bets against U.S. equities and emerging market stocks in Asia last week while positioning themselves for gains in European shares, according to a client note released by Goldman Sachs. The investment bank said the shift reflects growing caution among large institutional investors as geopolitical tensions and rising inflation concerns weigh on global markets.
Data compiled by Goldman Sachs showed that global equity selling accelerated significantly during the week, marking the largest wave of net selling since April 2025. The activity was driven largely by hedge funds expanding short positions in stocks for the fifth consecutive week. Short selling allows investors to profit when stock prices decline, meaning many funds are currently positioning themselves for further market weakness.
The increase in bearish bets came as global equities endured another difficult stretch. The broad global equity gauge, the MSCI World Index, recorded its third straight week of declines as investors reacted to rising bond yields and fears that escalating tensions involving Iran could push oil prices higher and reignite inflation pressures worldwide.
Concerns over the potential economic fallout from geopolitical conflict have made markets increasingly volatile. Rising oil prices in particular have raised fears that energy costs could surge again, potentially complicating efforts by central banks to bring inflation under control. Higher inflation expectations have also pushed government bond yields upward, adding further pressure on equity valuations.
Goldman Sachs noted that hedge funds were selling both individual stocks and exchange-traded funds that track major indexes. Index-tracking investment products, including ETFs, saw net selling alongside single-company shares as funds reduced their exposure to global equities.
Across sectors, selling activity was widespread. Most industries experienced more selling than buying from hedge funds, with consumer discretionary companies, technology firms, and financial stocks leading the declines in investor demand. These sectors are typically more sensitive to economic slowdowns and rising interest rates, making them vulnerable during periods of uncertainty.
In contrast, defensive sectors showed relative strength. Consumer staples companies, which produce everyday necessities such as food and household goods, attracted long positions from hedge funds. Energy stocks also drew positive bets, reflecting expectations that oil and gas prices could remain elevated if geopolitical tensions continue to threaten supply.
The data also revealed a notable shift in emerging markets. Hedge funds reduced long positions in Asian emerging market equities and simultaneously increased short positions, signaling growing pessimism about the region’s near-term market outlook. The move suggests that investors expect continued volatility in developing markets as global economic uncertainty persists.
Despite the cautious stance toward equities overall, some hedge fund strategies managed to generate modest gains during the week. According to Goldman Sachs, hedge fund stock pickers posted a performance gain of 0.47% between March 13 and March 19, with many benefiting from long positions that performed well during the period.
However, performance for the month has remained challenging. Stock-picking hedge funds have lost 3.85% so far in March, reflecting the broader downturn in global equities during recent weeks. Even so, the group remains slightly positive for the year overall, with gains of 0.16% year to date.
Another group of hedge funds known as systematic traders—those that rely heavily on algorithms and quantitative models—performed more strongly. These funds generated profits from short positions during the recent market decline and are now up more than 6% since the beginning of the year.
Goldman Sachs also reported that hedge funds slightly reduced their overall risk exposure during the week. Gross leverage, a measure of how aggressively hedge funds are trading relative to their capital, fell to 309.8%. A decline in leverage typically indicates that funds are scaling back positions and adopting a more cautious stance amid uncertain market conditions.
The shifting investment strategies highlight how professional investors are adjusting portfolios in response to rising geopolitical tensions, higher borrowing costs, and concerns about global economic growth. While some hedge funds are taking advantage of market declines through short selling, others are increasingly focusing on defensive sectors and regions they believe may prove more resilient in the current environment.
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