Did you wonder why HSBC stock fell this past week? Were talking about HSBC Plc in London this time. One reason is that many hedge funds are in trouble. While these funds invested in HSBC, since HSBC seemed to be a safe and solid performer, the inverse is that the same hedge funds sell HSBC when the funds need to liquidate. “HSBC is one of the core stocks many of these funds hold. Because some of them had to liquidate on Monday, you saw the fall,” said Peter Lai, sales director at DBS Vickers, who said short-selling was also to blame for the chaos.
A hedge fund is a private investment fund open to a limited range of investors. Hedge funds often seek to offset potential losses in the principal markets they invest in by hedging their investments using a variety of methods, most notably short selling. So whether fund managers are selling because they need the money, or because they are stuck with a wrong guess in a short position, “private investors” are treasured by big banks and investment houses.
The last thing one wants to do is anger those with the most money. Many analysts predict that over the next twelve months some smaller hedge funds may fail entirely. If at least one larger fund collapses it will no surprise. There is too much volatility in the markets.
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