Hedge Fund Investment Leverage Was Compressed QE Exit Triggered Mass Withdrawal Tide

"Before the end of the year

Exit QE, in fact, the financial market has long expected. "

Olga Rybalkina, executive director of FXTM, an international forex broker, said frankly.

But on the 29 day of October, when the Federal Reserve formally announced its withdrawal from the QE policy, she found some unusual phenomena in her foreign exchange and commodity brokerage trading platform, such as the abnormal enlargement of trading volume in a certain period.

To this end, she had to expand her foreign exchange brokerage business in China. At the same time, she always asked her colleagues in Europe to pay close attention to the abnormal pactions of investors and remind investors to avoid the risk of positions in time.

In the view of Olga Rybalkina, the abnormal enlargement of trading volume is mainly due to a number of impulsive throws.

Before that, many investors bet that the US Federal Reserve would extend the QE period. Now they are starting to panic selling their gold, copper, aluminum and euro bullish positions, instead of competing to buy US dollars and US stocks.

Behind this is that many investors must adapt themselves to the new investment rules - how to make profits in the environment of a dollar liquidity contraction.

Olga Rybalkina said, QE quit actually changed many rules of the game in the financial investment market - hedge funds may not be able to get highly leveraged investment multiple during QE's loose period, and the margin trading financing currencies will gradually turn from the US dollar to the euro and yen.

Against the backdrop of regulatory tightening of Blackpool trading, QE's withdrawal from the new round of hedge fund's profit taking has not ruled out that some investment institutions are using the QE exit policy to achieve the "bleaching" of black pool trading.

For an American hedge fund manager, Zhang Gang, the Fed's announcement of its withdrawal from QE is a tough choice to sell on the day.

20 minutes after the Federal Reserve announced its withdrawal from QE, its hedge fund investment committee quickly convened an emergency meeting to decide all the already profitable commodities and gold positions held by the clearing fund, instead of buying the US dollar and the S & P 500 index ETF.

The reason is that the withdrawal of QE is bound to boost the US dollar exchange rate, and the dollar denominated commodity prices will usher in a new downward pressure.

But he personally believes that this approach may not be wise.

Taking gold as an example, on the one hand, global gold prices fell below 1200 US dollars / ounce, the closer to the gold mining cost of US $1100-1200 / ounce, the stronger the gold price fall off. On the other hand, from the perspective of asset allocation, in case of QE withdrawal, triggering Global financial market turbulence, the gold hedging function can alleviate the net loss of the entire investment portfolio of the fund.

"However, the investment committee considers more than asset allocation, but strives to give investors a handsome return on investment at the end of the year."

He said.

Compared with falling commodities, QE's exit has completely stimulated investors' optimism about the sustained recovery of the US economy and helped us stocks continue to rise.

"Now, global investment institutions are more concerned about when the Fed will raise interest rates as a response to the rapid economic recovery of the United States."

Jameel Ahmad, chief market analyst for fortuo, said.

The profit - to - profit drive has driven more and more hedge funds to abandon commodities and make profits.

Bloomberg data showed that in September alone, a total of 1 billion 50 million US dollars were withdrawn from commodity ETF, of which the precious metals and energy sectors were the hardest hit by capital redemption.

This is also the global fund manager's 13 week long reduction in the US 18 products' long bets, the longest record since 2006.

In Zhang Gang's view, this caused the hedge fund to fall into a vicious circle of cocoon and bind itself. Under the pressure of large capital redemption, the Bloomberg commodity index in the three quarter of this year dropped by 12%, the biggest quarterly decline since the fourth quarter of 2008, which caused many hedge funds to lose their profits, which led them to speed up the selling of bulk commodities and avoid greater losses.

In the view of Olga Rybalkina, behind the tide of commodity sell-off of hedge funds, there is a deeper reason in addition to profit making and the pursuit of high returns of US stocks. During the period of QE easing, many hedge funds have invested a lot of highly leveraged investments. Now QE exits, causing market liquidity to shrink, and leveraged financing costs tend to increase, so that hedge funds can quickly withdraw funds to repay bank loans.

"In

In the period of QE quantitative easing, we have 6 partners of fund providers, giving hedge funds 50-100 times leverage to invest in foreign currencies and commodities.

Olga Rybalkina said that with the withdrawal of QE, the providers of capital will also face difficult choices. First, it is difficult to raise funds from the market to meet the demand of high leverage investment funds of hedge funds, which may lead to the loss of some customer resources. Two, even if enough leverage financing is provided, the interest on loan financing will also be improved, and it will take a lot of effort to persuade customers to accept this reality.

But QE has begun to change many investment rules in the international financial market.

For example, in the QE period, hedge funds were particularly fond of interest spread pactions, that is, they used ultra-low financing costs of LIBOR+20-30 basis points in London interbank lending rates, borrowed large amounts of US dollars into investment banks, and then converted them into Australian dollar, New Zealand dollar and RMB assets with relatively high interest rates, taking advantage of the spread between us dollar low financing costs and high interest currencies.

At the same time, hedge funds also use these low leverage leverage to invest in commodities and earn higher returns.

As QE tightens, the rise in the cost of US dollar financing will sharply reduce the spread of trading spreads, which will drive hedge funds to withdraw leveraged financing from commodities and other investment markets.

"A new trend is that many hedge funds turn to euro and yen as financing currencies, and continue to carry out differential trading and commodity positions."

Zhang Gang said.

Euro and yen have the possibility of further quantitative easing, which is a good substitute for financing currency.

As early as the three quarter, Zhang Gang's hedge fund had discussed its operability, but the proposal was eventually shelved as QE quit and triggered a larger sell-off of commodities.

In his view, behind the surge of hedge funds' withdrawal from commodities, many colleagues took the opportunity to bet on the decline in commodity prices and earn QE dividends. Since the end of July, Lun Ni has fallen by 16% and Lun copper has fallen by 4.9%.

Again, hedge funds have bet on copper prices for the past five weeks, the longest bearish record since April.