On Tuesday, August 13th, Goldman Sachs strategist Scott Rubner stated in a report seen by Reuters that systematic trading strategies, including hedge funds, continue to sell trades, resulting in an increase of approximately $109 billion in the global stock futures for the past month. In the product structure, 10-30 billion yuan products had operating income of 401/1288/60 million yuan respectively.
According to a report released on Monday, the sell-off may continue into the fall, and the second half of September may be a "challenging trading environment."
Systematic trading strategies use strict rules rather than intuition from speculators, sometimes including code and algorithms, to guide trading and investment decisions.
At the beginning of August, global stock markets experienced crashes due to the Japanese central bank's interest rate hike and weaker-than-expected US employment data, leading to investors positioning for the yen and other currencies incorrectly.
Rubner stated that one factor leading to this crash was the systematic trading program used by so-called "commodity trading advisers" (CTAs), which follow market trends but require trading programs to abandon positions when certain risk thresholds are reached.
"CTA strategies based on rule-based systematic deleveraging remain one of the most significant influences on markets....We have just witnessed one of the largest and fastest deleveragings that I have seen." said Rubner, a Goldman Sachs tactical strategist.
The leverage ratio reached its peak.
According to data provided by the Financial Research Office's hedge fund monitoring, the leverage ratio used by hedge funds to increase trading volume reached its highest level in the past decade.
Their data shows that as of the end of March, US-registered hedge funds borrowed $2.3 trillion from major brokers, an increase of about 63% since December 2019, and their growth rate exceeds that of their assets.
Goldman's report stated that after Monday's closure of leveraged trades worth tens of billions of dollars caused a stock market crash, traders sold most of their stock futures over the past week, with a total value of about $80 billion.
The Chicago Board of Exchange Volatility Index (.VIX), favored by Wall Street for market panic, closed at its highest level in nearly four years on August 5th.
In the past three weeks, the top book liquidity of the benchmark S&P 500 Index (.SPX) showed that stock trading volume has dropped by 80%. This figure indicates the difficulty of buying or selling stocks, which has dropped from $26 million in July to $5 million.
The report noted that bets on options for volatility or stable stock markets continued to decline.
It added that retirement funds will rebalance in September, and this time, they will "further sell" their equity exposure.
Given the constantly improving financial situation of pension funds, or the balance between pensions owed and the value of their investment assets, Rubner believes that these investors (some of whom are the largest in the world) will abandon stocks and turn to fixed income with lower bond yields.