By Summer Zhen and Samuel Shen
HONG KONG/SHANGHAI (Reuters) -Some hedge funds say they are offloading all or most of their holdings of stocks as U.S. President Donald Trump’s trade war wipes out trillions of dollars of market value and forces them to curtail trading using borrowed cash.
In the three trading days following Trump’s announcement of broad reciprocal tariffs on almost all countries, stock markets across the world have plummeted, and bonds have become both a haven and a bet on rate cuts by the Federal Reserve, turning on their head market assumptions before Trump took office.
The selloff on Wall Street has been vicious as investors that bet on U.S. exceptionalism and economic might stampede out of its markets.
The benchmark S&P 500 index fell 10.5% over two days and lost about $5 trillion in market value. China’s CSI300 blue-chip index fell more than 5% on Monday, while the pan-European STOXX index is down nearly 12% from its March 3 all-time closing high and in correction territory.
William Xin, chairman of hedge fund Spring Mountain Pu Jiang Investment Management based in Shanghai, said he had liquidated all of his stock positions as the current geopolitical landscape is messy, and the risk of a global recession is rising.
“The macro picture is getting very chaotic, and I cannot see the future clearly at all,” said Xin, who sold his China and Hong Kong-listed shares last Thursday, ahead of a public holiday on Friday.
Hedge funds that pursue a long-short equity strategy have been particularly hard-hit as market volatility metrics surged, brokers said.
Analysts at J.P.Morgan estimated net leverage, which refers to borrowing, by hedge funds fell between 5% and 6% last week over the previous one, and that net hedge fund leverage could be around the lowest since late 2023.
The bank said on Friday that volatility targeting portfolios had between $25 billion and $30 billion in equities to sell in the coming days, as they unwind positions to reduce risk. Levered exchange-traded funds (ETFs) had an additional $23 billion to sell to rebalance into Friday’s close, mostly tech stocks, it had said.
Hedge funds typically use margin accounts in which they borrow cash from prime brokers to trade markets.
When the value of holdings in an investor’s margin account falls below the broker’s required deposit, brokers can call on an investor to top up the account with cash or to sell those stocks or bonds.
That rush for cash has seen even gold, typically a safe asset during crises, fall sharply since Trump’s “Liberation Day” tariffs were unveiled on April 2.
