Research and industry data have shown that hedge funds are preparing for Donald Trump's presidency by increasing their investment positions to the highest levels of leverage seen in over a decade, amidst expectations of a continued rise in the US dollar.
According to a memorandum issued by Morgan Stanley, a leading brokerage firm, hedge funds operating in US stock trading began the week with leverage levels that are the highest since 2010, reflecting a significant increase in their market positions.
Strong Bets on European Markets The memorandum revealed that European investors are intensively betting on rising stocks, particularly in the financial, technology, and energy sectors, amid positive forecasts regarding the performance of these markets.
In this context, an investment letter from Lancaster Investment Management in London, which oversees assets worth $1.4 billion, indicated that Trump’s policies, such as tax cuts and dismantling trade restrictions, may provide investment opportunities for some US companies. However, tariffs and economic volatility may pose challenges that hinder broader gains.
Impact of Economic Policies on the Dollar A separate memorandum from Goldman Sachs reported that hedge funds have sold emerging market shares outside of China in the largest sell-off since October, while their investments in China have hit a five-year low.
Additionally, a report from JP Morgan clarified that hedge funds relying on macroeconomic analysis of markets continue to bet on the strength of the US dollar, prompting many investors to maintain long positions against the British pound and the euro.
Expectations for Continued Dollar Strength Russell Matthews, a portfolio manager at RBC BlueBay Asset Management, confirmed that his team is continuing to invest heavily in the dollar, anticipating that the euro will reach parity or lower against the dollar. He added that potential punitive measures against Europe might lead to further volatility in financial markets.
