As hedge funds typically fund their bets through borrowing, their adjustments are exacerbating market moves, some investors said.
Banks give hedge funds leverage, essentially a loan to fund investing, which amplifies hedge fund returns but can also increase losses.
A note sent by Goldman Sachs to clients on Friday showed that gross leverage from Goldman Sachs prime brokerage, or the total amount that hedge funds have borrowed, declined in June and July, but still sits near five-year highs.
Last week marked the third consecutive week that hedge funds' bets that stocks will fall outpaced the addition of bets that they will rise, Goldman said in a separate note, saying one long position was added for every 3.3 short bets.
It added on Monday that as of the Asian close, Japan-focused hedge funds were down 7.6% in the past three trading sessions.
While macro funds may have been involved in currency trades relating to the yen, many stock-trading hedge funds, because of a June short selling ban in South Korea and regulatory headwinds against the same practice in China, had moved focus to Japan, investors said.
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