Asian Hedge Funds Hit Hard in July as AI Chip Stocks Lead Decline
N.R. Finch
Asian hedge funds that rode AI-chip gains in the first half saw double-digit drawdowns in early July — the WT China Fund lost ~17% in the month after surging 120% in H1. Concentrated positioning is now exacting its cost.
The hardest-hit funds — how much did they make before this?
WT China Fund lost roughly 17% (gross) through July 17, erasing part of a 120% first-half gain. This means → nearly one-seventh of six months' profit vanished in two weeks.
Keystone Investors' hedge fund pulled back 12% over the same span, following a 63% gain in the prior six months.
FengHe Asia, CloudAlpha, and Indus Capital also posted losses, though exact figures were not disclosed.
Why did they all blow up at once?
Morgan Stanley's prime brokerage unit flagged three converging forces in a July 21 report: violent swings in crowded AI trades + momentum-strategy reversal + geopolitical uncertainty.
In plain terms = everyone owned the same stocks — they rallied together and stampeded together.
SK Hynix shares in Seoul fell roughly 28% this month; Japan's Kioxia Holdings dropped 28% too, now about 40% off its peak.
Bank of America's July global fund-manager survey named long global semiconductors as the most crowded trade. Several banks have raised swap-financing rates and tightened capacity for new positions.
Did anyone make money in the chaos?
Eagle's View Capital Management's Japanese convertible-arbitrage fund posted a rare positive return during July's volatility.
Manager Chris McGuire said elevated volatility created a favorable environment for the strategy. This reflects how the same turbulence cuts opposite ways for different playbooks.
Is the sell-off over?
Selling pressure eased this week; fund NAVs began recovering, and Z.AI — down as much as 50% intra-month — has started to rebound.
Industry observers expect actual losses to be far wider than disclosed — most Asian hedge funds do not provide mid-month performance updates.
Indus Capital partner John Pinkel noted that funds with strong H1 gains face quarter-end redemptions or rebalancing, and cash-strapped managers were forced sellers, amplifying the pullback. This means → the driver was portfolio structure, not a fundamental deterioration.
What are major institutions saying about semis from here?
DWS downgraded global semiconductors from "positive" to "neutral," arguing that the upside from hyperscaler demand surges and high barriers to entry is largely priced in.
DWS portfolio manager Tobias Rommel wrote: "The AI thesis in semis still holds, but the focus has shifted from growth to earnings sustainability."
In plain terms = the story hasn't changed, but the stock prices already absorbed the good news — now the market wants to see actual profits keep up.
Why are macro funds struggling too?
Asia-based macro hedge funds have had a weak year: U.S. and Israeli military action against Iran disrupted rate-positioning bets.
Their traditional focus on fixed income and FX meant they missed the AI-driven equity rally entirely.
Whether AI-chip holdings can regain market confidence around earnings season will be the key test of this rebound's durability.
Content is for reference only, not financial advice.