HEDGE funds betting against stocks abandoned those trades last week at the fastest pace since 2015, surpassing the speed of their exodus from the meme-stock frenzy two years ago, Goldman Sachs said in a research note seen by Reuters.

The largest short positions held by hedge funds were in industrials and information technology companies, Goldman said. It added that hedge funds also exited many long positions in Asian developing markets and Chinese equities.

The latest short squeeze implied that stock prices rose so much that bearish bets became too expensive to hold. It saw hedge funds surprised by a sharp rally in equities last Thursday (Feb 2), after the US Federal Reserve slowed its pace of interest-rate hikes, leading markets to anticipate that rates would peak soon.

The tech-heavy Nasdaq rose 3.3 per cent last Thursday, in its biggest one-day jump in more than two months. Gains were led by surges of over 20 per cent in Meta Platforms and orthodontic company Align Technology.

A day later, stronger-than-expected US jobs data sparked a sell-off in world stocks, leading them to fall some 0.7 per cent. This renewed concerns that the Fed might need to remain aggressive in its monetary tightening to tame inflation.

Goldman said the speed at which hedge funds exited bearish positions surpassed that seen in January 2021. At the time, retail traders worked in concert to push short-sellers out of stocks such as video-game retailer GameStop and movie theatre operator AMC Entertainment Holdings.

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The 2021 buying frenzy started on social media website Reddit. At-home traders used retail trading platforms, such as Robinhood, to lift the price of heavily shorted stocks, including GameStop. This forced many short-sellers out of positions; in some cases, funds restructured and returned money to their investors.

After stuttering recoveries during a volatile two years, AMC and GameStop are now trading above their price levels of Jan 15, 2021, just before the meme stock frenzy began.

Resurgent risk appetite among some investors fuelled rallies in the shares of so-called meme stocks since the start of this year as well, but many analysts were sceptical the recent moves would last. REUTERS