LONDON – Global hedge funds have significantly reduced their bearish positions on European stock markets at the fastest rate in a decade, according to a note from Goldman Sachs sent to clients and reviewed by Reuters on Monday.
The report highlights that hedge funds, traditionally inclined to bet against Europe’s equities, have been actively unwinding both short and long positions over the past two weeks leading up to July 26. This rapid adjustment marks the most significant in approximately ten years.
Europe emerged as the region with the highest net buying activity as hedge funds closed their short positions at double the rate of their long holdings, Goldman Sachs indicated. A short position anticipates a decline in the price of an asset.
Despite a varied performance in recent corporate earnings, Europe’s broad stock index has appreciated about 7% year-to-date. Notably, Mercedes-Benz saw a 3% drop in stock value on Friday following a reduction in its profit forecast. In contrast, EssilorLuxottica, the maker of Ray-Ban, experienced an 8% rise in its share price after news that Facebook parent Meta was considering acquiring a stake in the company.
According to Goldman Sachs, hedge funds unwound European stock trades daily over a 12-day period ending July 25, during which the STOXX index reached an intra-day low for two months. Thursday saw the most substantial exit of trades this year, with most adjustments focused on single-name stocks.
A recent Reuters analysis of the top 60 companies within the STOXX 600 index revealed that European firms’ average daily stock movements have surged by 18% compared to eight years ago when they reported earnings.
As of July 26, hedge funds specializing in stock trading have realized a 7.6% return, while systematic equities traders have achieved a 15.9% gain for the year, according to Goldman Sachs.
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