HONG KONG — The correction in artificial intelligence (AI) stocks has triggered the biggest monthly losses on record for Asia-focused equity hedge funds, wiping out much of their year-to-date gains.

According to Reuters, Goldman Sachs said Asia-focused fundamental long-short hedge funds had fallen by an average of 18.6% in July through 28 July 2026. The decline marks the largest since the bank began tracking their performance.

During the first half of the year, Asian hedge funds were among the world's best-performing investment vehicles, driven by the rally in AI stocks. Several funds posted returns of more than 100% after building positions early in South Korean chipmakers such as SK Hynix and Samsung Electronics.

However, the rally has since reversed. Goldman Sachs said Asia hedge funds' year-to-date gains had shrunk by around 21 percentage points from their peak of 40% on 22 July 2026.

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The bank said heavy positions in AI stocks had become the main factor behind the sharp deterioration in the performance of Asian hedge funds. The greater a fund's exposure to the AI sector, the steeper its losses.

Pressure has also spread across Asian semiconductor stocks. Chip shares in the region declined this week, with South Korea leading the sell-off as investors began questioning the scale of AI spending while unwinding leveraged positions.

South Korea's Kospi index tumbled almost 11% on Tuesday (28 July), marking its biggest one-day decline in around five months.

Amid the market turmoil, hedge funds opted to lock in profits and reduce risk. Goldman Sachs said Asia hedge funds cut their exposure for eight consecutive trading sessions through 27 July 2026.

The investment bank also noted that the reduction in positions over the past five trading days was the largest on record.

The selling was concentrated in stocks from Taiwan, South Korea, Japan and China.

"In terms of market capitalisation, this is the largest position unwinding we have ever seen," said Vikas Pershad, Asia Equity Portfolio Manager at M&G Investments.

According to Pershad, the high trading volumes that had fuelled the AI stock rally have now accelerated the decline as investors unwind their positions. (ARF/LM)

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