Hedge funds ditch bearish Europe bets at fastest pace in a decade

Global hedge funds ditched bets against European stock markets at the fastest pace in 10 years amid a raft of better-than-expected company results, according to a Goldman Sachs (GS.N) note to clients seen by Reuters this week.

Hedge funds, which have mostly been betting against Europe’s stock markets, unwound both short and long trades over the two weeks to July 26 at the highest rate in about a decade, said the Goldman research note sent to clients on Saturday.

Hedge fund positions in single stocks have been a driver for equity price swings this year.

Europe was the region that saw most net buying, as funds closed their short positions at twice the rate they closed their long holdings, Goldman said. A short bet expects the price of an asset to fall.

Europe’s broadest stock index (.STOXX) closed the week up about 7 per cent for the year despite a mixed bag of recent corporate earnings.

Mercedes-Benz (MBGn.DE) stock fell about 3 per cent on Friday after the car maker trimmed its profit outlook, while on the same day, Ray-Ban maker EssilorLuxottica (ESLX.PA) stock jumped 8 per cent after its CEO said Facebook parent Meta (META.O) was considering the purchase of a stake in the company.

Hedge funds unwound European stock trades every day for the 12 days to July 25, when the STOXX index hit an intra-day two-month low, said Goldman.

On Thursday, hedge funds exited trades at the fastest pace seen all year, the bank said.

Most of these positions were in single-name stocks, the note said.

A recent Reuters analysis of the top 60 companies in Europe’s broad STOXX 600 index showed that when European companies reported earnings over the past year, their average daily stock moves were 18 per cent higher than eight years ago.

Stock trading hedge funds have returned 7.6 per cent while systematic equities traders are up 15.9 per cent for the year to July 26, said the bank.