AI-Driven Selloff in Kospi and Nikkei Triggers Record 15.2% Drawdown in Asian Hedge Funds in July
Key Takeaways
- •Goldman Sachs estimated that Asia's primary stock-picking hedge funds suffered a record 15.2% decline in July, the worst monthly performance ever recorded for the category.
- •The losses were concentrated in semiconductor and technology stocks, which had been among the strongest performers earlier in the year.
- •Concerns about the sustainability of AI capital expenditure and escalating Middle East geopolitical tensions were the two main drivers behind the market downturn.
- •Individual multi-strategy hedge funds reported monthly losses ranging from 3% to 9%, with variation reflecting differences in positioning and leverage.
- •The selloff highlights how Asia's technology sector has become tightly coupled to the global AI investment cycle, where shifts in U.S. data-center spending expectations can rapidly impact markets in Tokyo, Seoul, and Shanghai.
Asia's major multi-strategy hedge funds sustained sharp losses in July as an AI-linked stock selloff across Japan, South Korea, and China erased a significant portion of their 2026 year-to-date gains.
According to estimates by Goldman Sachs, Asia's primary stock-picking hedge funds experienced a record 15.2% monthly decline in July — the worst on record for the category. The sell-off was concentrated in semiconductor and technology stocks, which had been among the strongest performers earlier in the year.
Drivers of the Decline
Two primary factors pressured markets during the month. First, growing concerns about the sustainability and scale of artificial intelligence capital expenditure led investors to reduce exposure to chipmakers and AI-related equities. Both the Nikkei 225 — Japan's benchmark equity index — and the Kospi — South Korea's main stock market index — host large semiconductor and technology companies that bore the brunt of the selling pressure. The Nikkei is home to major semiconductor equipment manufacturers such as Tokyo Electron and Advantest, while the Kospi includes Samsung Electronics and SK Hynix, the world's two largest memory chip producers — all companies whose valuations had risen sharply on AI infrastructure demand.
Second, escalating geopolitical tensions in the Middle East added further risk-off sentiment, compounding losses in an already fragile market environment.
Impact on Fund Performance
Individual multi-strategy funds reported losses ranging from 3% to 9% for the month, according to people familiar with the matter. The dispersion reflected differences in positioning, leverage, and exposure to the most affected sectors.
The Goldman Sachs estimate of a 15.2% drawdown for Asia-focused long-short equity hedge funds marks a notable milestone, surpassing previous monthly declines and underscoring the concentration of risk in AI-related trades that had driven much of the region's first-half gains. The decline also highlights the degree to which Asia's technology sector has become tightly coupled to the global AI investment cycle, where shifts in expectations about data-center spending by large U.S. technology companies can rapidly reverberate through equity markets in Tokyo, Seoul, and Shanghai.
The sharp reversal highlights the volatility inherent in crowded positioning around AI themes, where rapid shifts in sentiment can produce outsized moves across interconnected markets in Japan, South Korea, and China.
Source: Economic Times Markets
