Global equity hedge funds reduced risk at the fastest pace in more than a decade during the first week of November, as a sharp selloff in artificial intelligence stocks triggered widespread deleveraging across major markets, according to Morgan Stanley prime brokerage data.

The gross market value of long/short equity hedge fund positions has declined 10.7% since late June, reflecting a significant retreat from equity exposure as concerns over AI valuations and the implications of the US midterm elections weigh on investor sentiment.

Hedge funds recorded negative returns across all major regions during the first week of November, with Asia-based managers losing an average of 1.5%, compared with a decline of more than 5% in the MSCI Asia-Pacific Index. The losses reduced Asian hedge funds' year-to-date gains to approximately 2.6%, compared with returns of 6% among US-based managers.

China-focused equity strategies were a notable exception, gaining an average of 1.1% during the week and extending their annual return to 6.7%. Hong Kong and China were also the only markets to record net buying, supported by state-backed intervention that encouraged hedge funds to cover short positions in domestic equities, particularly consumer, semiconductor and state-owned companies.

Elsewhere in Asia, managers concentrated their risk reductions in technology stocks, cutting long positions and increasing bearish bets, particularly in Taiwan and South Korea. Fundamental equity managers led the selling, while multistrategy, macro and quantitative funds reduced short exposure.

Gross leverage among Asian equity long/short hedge funds fell three percentage points to 124%, approaching the 123% low recorded during the tariff-driven market turmoil of April 2025. In the US, net leverage among long/short equity managers dropped five percentage points in a single trading session to 42%.

The rapid reduction in exposure highlights the extent of hedge fund deleveraging following October's market disruption, as managers reassess concentrated technology positions and seek to contain further losses amid elevated volatility.