“Smart money” sells off tech stocks! Damo: Hedge funds are reducing their holdings in AI trading, for the first time since early 2023

The Zhitong Finance App learned that according to Morgan Stanley data, hedge funds have cut their exposure to a wider range of AI transactions to “underweight” (Underweight) for the first time since the beginning of 2023. This also puts an end to the longest continuous portfolio risk removal period in more than 15 years.

According to data from Morgan Stanley's main broker business as of Thursday, the total cumulative flow of hedge funds fell 8% from the June peak, making it the largest continuous deleveraging on record — managers failed to rebuild exposure between several rounds of retracement between summer and October.

Technology stocks were sold off as investors increasingly worried that huge investments in AI infrastructure would not yield fast enough returns; the quarterly earnings reports released by Alphabet (GOOGL.US) and Amazon (AMZN.US) last week made Wall Street uneasy.

Although the bears' recovery boosted the US long and short net leverage by 5 percentage points to 51%, total leverage fell to 207%, indicating that managers are reducing the overall book size rather than investing in new capital.

Data from Goldman Sachs's main brokerage business confirmed that recent stock purchases were almost entirely driven by closing bearish positions rather than establishing new long positions. From October 23 to 29, the fund achieved net purchases of US stocks for the first time in four years; indices and ETF products accounted for 73% of total purchases, and short positions in US-listed ETFs fell 4.8%, making up for the largest round in more than six months.

Although the IT sector had the highest net inflow into the sector, this round of purchases only recovered 40% of the sector's sales volume in the first three weeks; the “Big Seven” technology stocks were net sold on four out of five trading days.

According to Goldman Sachs data, even though the fundamental long and short net leverage recovered 3.6 percentage points to 47.0%, it was still at a multi-year low near the 5th percentile of the five-year range; the long to short ratio was locked at the 1st percentile of 1.555. After the sell-off before the weekend brought total traffic to balance, the main broker's business desk pointed out that the reduced net exposure left significant room for further short recovery, which could drive the final transformation of the market.