Global hedge funds suffer losses, net leverage drops as market plunges, says Morgan Stanley

Summer Zhen

Mon, Apr 7, 2025, 11:54 PM 2 min read

By Summer Zhen

HONG KONG (Reuters) -Hedge funds tracked by Morgan Stanley globally posted increasing losses arsenic markets tumbled past week aft U.S. President Donald Trump's announcement of sweeping tariffs, turning year-to-date show to a 3% diminution and driving down their nett leverage.

Trump launched a historical commercialized warfare connected Wednesday, and China retaliated with 34% reciprocal tariffs connected U.S. imports connected Friday, stoking fears of a planetary recession and sparking the worst 2 trading days for stocks since the pandemic successful 2020.

The S&P 500 and FTSE plunged implicit 10% and 6% respectively aft Trump's announcement. Commodities besides tumbled broadly, with lipid prices hitting their lowest successful 4 years arsenic of Monday.

Hedge funds had already accelerated their unwinding of positions and sought information up of the tariff announcement, and export-driven Asian markets were astatine the forefront of the sell-off.

Morgan Stanley estimates U.S. long-short funds nett leverage rapidly fell to 37%, "just shy of humanities lows," by the extremity of Friday, from implicit 50% astatine the opening of the year.

A abstracted enactment by JPMorgan besides said nett leverage of hedge funds dropped to astir the lowest since precocious 2023.

Net leverage measures the quality betwixt a fund's agelong and abbreviated positions against the worth of what it owns including borrowings. The little the nett leverage, the much blimpish a hedge fund's presumption is.

Investors expect important volatility connected hazard assets successful the adjacent word fixed the tariff uncertainties and suggest a continued risk-off stance.

"This planetary selloff has truthful acold been excessively orderly, truthful astir apt much to go," said Eddie Tam, main concern serviceman of Central Asset Investments, a Hong Kong-based hedge fund.

Hong Kong's Hang Seng Index had its heaviest descent connected Monday since 1997.

(Reporting by Summer Zhen; Editing by Sonali Paul)