A sharp global sell-off in stock markets, led by technology company stocks, erased the gains achieved since the beginning of the year by many hedge funds, while prompting some of these fund managers to reduce risk levels and reduce investment teams.
The wave of rise that followed relief with the results of the US midterm elections did not last long, as the sharp wave of decline in Thursday’s trading deepened losses throughout the sector, and funds that focus their investments on technology stocks were the most affected.
Goldman Sachs estimates showed that stock funds that adopt short-selling and buying strategies and focus primarily on the technology sector fell by more than 4 percent within one day, making their returns since the beginning of the year “close to zero.”
This compares to gains that peaked at 24 percent in June, before a sell-off driven by concerns about artificial intelligence.
According to the bank, global fund managers who adopt buying and short selling strategies based on fundamental analysis recorded losses averaging 1.3 percent, while multi-strategy funds declined by 1.4 percent on Thursday.
At the heart of the recent wave of pressure on the sector is the $17 billion Wally Capital hedge fund.
The fund, which is based in New York and adopts multiple investment strategies, said in a letter to investors seen by Reuters on Thursday that it will reduce its internal activity based on buying and short selling strategies in stocks, and will also reduce a large portion of the stock investment team.
“Following our worst month since March 2020, and with 2026 already challenging, we have conducted a comprehensive review of every aspect of our company,” the letter said. We have evaluated the optimal size of the fund and intend to return part of the capital to investors.”
Market participants said that a number of major multi-manager hedge fund platforms reduced leverage levels and laid off investment teams that incurred losses in recent weeks, anticipating more layoffs if the declines continue.
The turmoil that followed the US midterm elections deepened the losses recorded after the difficult month of October, during which investor sentiment declined due to the rise in borrowing costs related to artificial intelligence and concerns about the expected returns from investments in this sector.
The Nasdaq 100 index, which includes a large number of major technology companies, fell by 6.6 percent last month, recording its largest monthly decline in 18 months. JPMorgan estimated that global hedge funds suffered losses of about 3 percent during October.
John Flood, Partner and Managing Director of the Global Banking and Markets Department at Goldman Sachs, said in a note issued Thursday that the broad risk reductions that preceded the US midterm elections prompted many hedge funds to chase the rise that the markets witnessed on Wednesday, before they were surprised by the sharp reversal the next day.
He added that hedge funds are “again selling some of the positions they recently bought back in parts of the market, especially shares of hyperscale cloud computing companies.”
The research firm Pivotal Path warned in a note this week that it had observed a high and increasing degree of overlap in investment positions among the 10 largest multi-strategy hedge funds, which means that simultaneous exits from them may affect the same securities in a large number of these funds.
Oil prices fell during Friday's trading session, the last trading of the week, as crude continued the wave of losses that began in the middle of the week.
Prices are heading to record a sharp weekly decline in light of expectations that the Iran war will subside after the electoral losses suffered by the party of US President Donald Trump, but concerns about Middle East supplies have prevented further decline.
On Friday, Brent crude prices fell in spot trading by 1.22 percent to reach $96.93 per barrel, by 09:38 GMT. US West Texas Intermediate crude prices also fell 1.4 percent to $89.29 per barrel.
Brent crude oil is set to decline by 12 percent this week after the December contract expires on October 30, while the West Texas Intermediate crude contract is expected to decline by 12.1 percent this week.
The two contracts recorded a sharp decline earlier this week against the backdrop of expectations that the congressional elections that took place on Tuesday, and led to the transfer of control of the Senate and House of Representatives from Republicans who support Trump to the Democratic Party, could lead to a calming of the US-Israeli war against Iran, which has now entered its ninth month.
Oil prices fell by 8 percent on Wednesday alone after the Democrats achieved a landslide victory in the midterm elections, and at settlement reached their lowest levels in two months.
Prices rose again against the backdrop of escalating attacks on oil tankers on Wednesday and Thursday in the Gulf and the Strait of Hormuz. Which renewed concerns about supply flows from the region.
Iran said on Thursday that three more oil tankers were attacked in the Strait of Hormuz, and data issued by the British Maritime Trade Operations Authority indicate that attacks on oil tankers are still continuing at a pace close to their highest levels ever.
The Egyptian Ministry of Petroleum announced, on Friday, positive results from drilling the “Naseem-1X” natural gas exploratory well in the Taiba concession area in the Mediterranean Sea.
The Ministry explained in a press statement that the drilling and initial evaluation work revealed the presence of a natural gas-bearing layer with distinct petrophysical characteristics, with initial estimates indicating the presence of about 200 billion cubic feet of natural gas in the reservoir.
The ministry added that “the well is located in the Taiba concession area, in which the Italian company Eni is investing as a major operator, in partnership with the Australian company Woodside, while the operating company, Petrobel, carried out the work of drilling the well on behalf of the partners.”
The results of the initial assessment showed, according to the statement, “the presence of distinct petrophysical properties in the gas-bearing rocks, with a net thickness of the producing layer of about 15 meters at the true vertical depth, while preliminary estimates indicate that the volume of the original gas in the reservoir is estimated at about 200 billion cubic feet.”
The Ministry stated that technical and reservoir studies are currently continuing to further evaluate the reservoir and determine the size of extractable reserves and the productive potential of the well, in preparation for developing a gas development and production plan.
The statement stated, “Within the framework of accelerating benefit from the results of the detection, planning is underway to connect the well to existing production facilities, through the implementation of a gas transmission line with a length of about 22 kilometers, to connect it to the Abu Madi-Al-Jamil line, which will allow benefiting from the available infrastructure, shorten the time required to place the discovery on the production map, and contribute to supporting Egypt’s local production of natural gas.”
This disclosure comes in light of the growing research and exploration activities in the concession areas, supported by an improvement in the investment climate in the oil and gas sector, and after the settlement of foreign companies’ dues.
