Key Takeaways
- • Nine of 10 long-biased hedge funds (about 410 funds tracked) posted negative returns from October 1 through October 22, according to October return data from a major brokerage obtained by Money Today.
- • The Alpha Semiconductor Cycle Private Investment Trust No. 1 posted the worst October return at -42.76%, with the Invesco W Professional Investment Private Investment Trust No. 1 next at -30.93%.
- • The KOSPI fell 17% in October's opening weeks, including a 7.57% single-day plunge (454.59 points) on October 15, its largest drop since the double-digit decline on July 28.
- • Brokerages are curbing proprietary investment (PI) and considering stop-loss selling, with second-half profits expected to lag the first half after a strong second quarter driven by PI gains.
Summary
Domestic securities firms are expected to maintain a cautious approach to proprietary investment using their own capital, as valuation losses accumulate on equity positions following a sharp decline in the KOSPI. Analysts cited in the report believe second-half profits could be sluggish relative to the first half unless market sentiment recovers before year-end financial settlement.
According to October hedge fund return data from a major brokerage obtained by Money Today, nine of 10 long-biased hedge funds recorded negative returns from the start of the month through October 22. Of roughly 410 hedge funds using long-biased strategies, only three exceeded a 1% return and 33 posted gains in the 0% range. Long-biased funds increase equity exposure to offset risk, aiming for high returns in rising markets but giving back gains when markets fall. The weakest performer, the Alpha Semiconductor Cycle Private Investment Trust No. 1, fell 42.76% in October after semiconductor holdings dropped sharply. Other large decliners included the Invesco W Professional Investment Private Investment Trust No. 1 (-30.93%), the Alpha Multi-Asset General Private Investment Trust No. 1 (-28.33%), the DS KBIZ General Private Investment Trust No. 1 (-27.18%), the DS Su General Private Investment Trust (-25.99%), and the VIP K-Leaders 2X General Private Securities Investment Trust (-25.67%).
The KOSPI drove these results. After stable trading in early October, the index fell for seven consecutive sessions starting October 6 and dropped below 5,500 before rebounding to the 5,600 level. The index's decline since the start of the month reached 17%. On October 15, the KOSPI plunged 7.57% (454.59 points), a "Black Thursday" event and the largest one-day drop since the double-digit plunge on July 28, triggering broad sell-offs across the KOSPI and KOSDAQ.
The outlook contrasts sharply with the first half, when proprietary trading was a major earnings driver. According to the Financial Supervisory Service, 61 domestic brokerages reported second-quarter net profit of 5.1914 trillion won, up 20% (864.8 billion won) from the prior quarter and 82.1% (2.3412 trillion won) year on year. Proprietary trading profit and loss at brokerages alone rose 45.8% quarter on quarter. A financial investment industry official said that with year-end settlement and personnel changes approaching, firms find it difficult to decide on investments in bonds, stocks, and real estate, and are considering stop-loss sales, effectively suspending new investments. The official noted that while the firms responded to the July crash with staggered stock purchases, the October decline was unforeseeable and they will wait for the market to recover first.
According to October hedge fund return data from a major brokerage obtained by Money Today, nine of 10 long-biased hedge funds recorded negative returns from the start of the month through October 22. Of roughly 410 hedge funds using long-biased strategies, only three exceeded a 1% return and 33 posted gains in the 0% range. Long-biased funds increase equity exposure to offset risk, aiming for high returns in rising markets but giving back gains when markets fall. The weakest performer, the Alpha Semiconductor Cycle Private Investment Trust No. 1, fell 42.76% in October after semiconductor holdings dropped sharply. Other large decliners included the Invesco W Professional Investment Private Investment Trust No. 1 (-30.93%), the Alpha Multi-Asset General Private Investment Trust No. 1 (-28.33%), the DS KBIZ General Private Investment Trust No. 1 (-27.18%), the DS Su General Private Investment Trust (-25.99%), and the VIP K-Leaders 2X General Private Securities Investment Trust (-25.67%).
The KOSPI drove these results. After stable trading in early October, the index fell for seven consecutive sessions starting October 6 and dropped below 5,500 before rebounding to the 5,600 level. The index's decline since the start of the month reached 17%. On October 15, the KOSPI plunged 7.57% (454.59 points), a "Black Thursday" event and the largest one-day drop since the double-digit plunge on July 28, triggering broad sell-offs across the KOSPI and KOSDAQ.
The outlook contrasts sharply with the first half, when proprietary trading was a major earnings driver. According to the Financial Supervisory Service, 61 domestic brokerages reported second-quarter net profit of 5.1914 trillion won, up 20% (864.8 billion won) from the prior quarter and 82.1% (2.3412 trillion won) year on year. Proprietary trading profit and loss at brokerages alone rose 45.8% quarter on quarter. A financial investment industry official said that with year-end settlement and personnel changes approaching, firms find it difficult to decide on investments in bonds, stocks, and real estate, and are considering stop-loss sales, effectively suspending new investments. The official noted that while the firms responded to the July crash with staggered stock purchases, the October decline was unforeseeable and they will wait for the market to recover first.
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