More Hedge Fund Sell-Offs Expected... Largest Sell-Off in 10 Years

Still High Stock Holdings and Short Selling Suggest Potential for Additional Sell-Off
Asset Halved After GameStop Investment Failure

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Hedge funds that suffered losses from short selling GameStop stocks have reportedly sold stocks on the largest scale in the past decade. Since the stocks held and the short selling volume by hedge funds remain substantial, there are concerns about the possibility of additional sales. Some hedge funds that engaged in short selling are said to have lost half of their assets.

On the 31st of last month (local time), Bloomberg News reported based on an analysis by investment bank Goldman Sachs that U.S. hedge funds sold the most stocks last week since the 2009 global financial crisis. Goldman Sachs analyzed that hedge funds sold long-held stocks and covered short positions across all sectors.

This coincides with the situation where GameStop stocks surged by 1700% due to concentrated buying by individuals, causing hedge funds that had shorted the stock to suffer massive losses.

Goldman Sachs stated, "Despite active selling, the volume of stocks held and shorted by hedge funds remains at historic levels, raising concerns that the recent sell-off may continue."

According to the U.S. securities industry, the total shorted amount of GameStop stocks reaches $11.2 billion. Although investors such as Melvin Capital and Citron Research, who shorted GameStop stocks, have stopped short selling, there are still many hedge funds betting on the stock price decline.

Since the surge in GameStop stock price is due not to earnings but to concentrated buying by individuals and short squeezes where those who shorted the stock buy it back, investors continue to expect the stock price to eventually fall.

The humiliation of hedge funds continues amid the counterattack by retail investors. The Wall Street Journal (WSJ) reported that Melvin Capital’s assets under management decreased by 53%, from $12.5 billion (about 14 trillion KRW) at the beginning of last year to $8 billion (about 8.9 trillion KRW).

The White House is also closely monitoring the situation. Jared Bernstein, a White House economic advisor, said in an interview with Fox News that "President Joe Biden’s focus is on ensuring there is no extreme volatility or speculation and maintaining the soundness of the market."

This content was produced with the assistance of AI translation services.