NEW YORK — Global macro funds are unwinding short positions in Hong Kong-listed technology firms, reversing a strategy initiated earlier this year after a sharp shift in inter-market correlation broke the underlying trade thesis.
Funds built significant short exposure in Hong Kong tech to fund long positions in South Korean semiconductor companies. The relative value play aimed to capture outperformance from AI demand in Korea while hedging against China's economic slowdown and regulatory risks in Hong Kong.
The strategy depended on a negative correlation—or a substantial performance gap—between the two regions. Investors expected Hong Kong tech to underperform, making it a funding source for high-growth Korean chipmakers including Samsung Electronics and SK Hynix.
The 60-day rolling correlation between the Hang Seng Tech Index and the KOSPI has shifted from -0.35 in March to +0.15 this week, signaling a breakdown in the trade thesis. That positive swing reduces the effectiveness of the pair trade, prompting funds to close short positions as rebalancing mandates kick in.
The unwind is providing support for Hong Kong tech stocks. Alibaba Group Holding Ltd. and Tencent Holdings Ltd. key components of the Hang Seng Tech Index, have seen share prices stabilize in recent sessions.
The reversal could temper gains in South Korean chip stocks. Samsung Electronics and SK Hynix have attracted heavy inflows, particularly from U.S.-based institutional investors.
SK Hynix CEO Kwak Noh-jung said the company has sold out its high-bandwidth memory production through the end of 2025—demand visibility that underpinned the long side of the trade.
The original position was effectively a duration call on equity market cycles: short longer-duration growth assets in Hong Kong against shorter-duration, higher-beta AI plays in Korea. As perceived risk spreads between the two regions compress, the premium for holding that short has diminished, forcing a re-evaluation of relative value and a reduction in duration exposure.
Hedge funds including Tiger Global Management and Coatue Management were active in similar cross-market tech plays during early 2024. Specific positions are proprietary, but the broad strategy was common among global macro and equity long/short funds.
A sustained correlation shift could drive broader capital reallocation across Asian equity markets, while for fixed-income managers the equity unwind points to a more volatile risk-on/risk-off environment that complicates hedging strategies tied to regional equity performance.
