As September concluded, global hedge funds rushed to take up bullish positions in banks, insurance firms, and capital markets, according to a client note from Morgan Stanley, taking advantage of increased interest rates’ positive impact on the financial industry.
The price of European bank stocks (.SX7P) dropped as much as 4% at one point in September before making a strong comeback to close the month up 2.6%, while the price of U.S. banks dropped 3%.
After a decade of low rates and slow growth that lowered margins, a two-year flurry of central bank rate increases has resulted in stronger earnings for financial corporations.
By September 21, the bank reported, hedge funds had increased their long positions in European banks, insurance companies, and capital markets businesses by a 12-month high.
According to a separate note published on October 2 by Morgan Stanley’s prime brokerage, hedge funds began the last week of September with modest amounts in North American banking equities. Still, they had cashed in by the end of the week.
“Those areas of the market where HF (hedge fund) ownership was lightest entering the week ultimately ended as the most net bought,” the report stated.
The bank said this also applied to equities of industrial and energy companies.
Exposure to long and short positions in all European equities remained comparatively modest for U.S. and European hedge funds.
While European hedge funds’ positions in Europe are close to their lowest levels since 2010, Morgan Stanley said that U.S.-based managers’ holdings in European stocks remain considerably lower than has often been the case.
European hedge funds are more exposed to corporations listed in the United States and other Asian nations except Japan.
Morgan Stanley, one of the largest lenders and traders of hedge funds, has access to information on their investing habits.
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