Quant hedge funds are facing significant challenges due to margin calls triggered by a substantial surge in Chinese stocks, particularly impacting those with short positions.
According to Bloomberg, hedge funds employing short strategies as part of their market-neutral approach are at risk of liquidation.
The situation escalated last week when the Chinese government announced that institutional investors could access central bank financing to purchase stocks. Additionally, officials indicated plans to establish a market stabilization fund, starting with an initial investment of 800 billion yuan (approximately $113 billion) aimed at bolstering the equities market.
Following these developments, the Hang Seng Index (HSI), which includes 82 blue-chip companies from China and Hong Kong, experienced a remarkable rally, recovering nearly two years’ worth of losses in just under two weeks. Similarly, the CSI 300, which tracks China’s 300 largest firms, has seen an almost 30% increase since the announcement.
Liangkui Asset Management, managing around 3 billion yuan ($428 million), reported that a combination of factors, including a “rare technical exhaustion of liquidity,” created turmoil for the firm. In a letter to investors obtained by Bloomberg, they described the margin calls as “the last straw” for their operations. When brokerages began closing their positions, the resulting liquidations of short positions contributed to the rally, exerting even greater upward pressure on an already surging market.
The first week of July brings several important developments in the United States that could influence both traditional markets and the cryptocurrency sector.
Ric Edelman, one of the most influential voices in personal finance, has radically revised his stance on crypto allocation. After years of cautious optimism, he now believes that digital assets deserve a far larger share in investment portfolios than ever before.
In the case involving Terraform Labs and its co-founder Do Hyeong Kwon, the defense has asked the Federal Court for the Southern District of New York to extend the deadline for pretrial filings by two weeks, pushing it beyond the original date of July 1, 2025.
Coinbase has emerged as the best-performing stock in the S&P 500 for June, climbing 43% amid a surge of bullish momentum driven by regulatory clarity, product innovation, and deeper institutional interest in crypto.