Following U.S. President Donald Trump’s sweeping announcement of tariff measures, global financial markets have been shaken. Some hedge funds have liquidated their stock positions entirely, and concerns over margin calls are growing across the market, Reuters reported on the 7th.
On April 2, President Trump declared a "Liberation Day" and warned of retaliatory tariffs against most countries.
Global stock markets plummeted over the following three days. The U.S. S&P 500 index fell by 10.5% in just two days, wiping out nearly $5 trillion in market capitalization. The European STOXX index dropped more than 12% from its March peak, entering correction territory.
China’s CSI 300 index plunged over 10%, while Hong Kong’s tech index lost more than 27% over the past month. The sell-off is now spreading to bonds and even gold.
William Xin, Chairman of Shanghai-based Spring Mountain Fujang Investment (SMPJI), said, “The geopolitical situation is extremely chaotic, and the risk of a recession has grown,” adding that he has liquidated all his positions in Chinese and Hong Kong stocks. He sold off all holdings on Thursday, April 3, ahead of a public holiday.
The risk of margin calls for hedge funds has also increased sharply. According to JPMorgan analysis, hedge fund net leverage dropped by 56% compared to the previous week — the lowest level since the end of 2023.
JPMorgan projected that, in an effort to avoid further risk, at least $25 to $30 billion worth of equities may be sold off in the coming days.
Hedge funds typically use borrowed capital through prime brokers. When the value of their holdings falls below a certain threshold, margin calls are triggered, forcing them to sell assets. It is believed that even gold was heavily sold off during this downturn, contributing to a significant price drop.
David Seif, an economist at Nomura Securities, stated, “This drop isn’t just a simple event — it’s the result of panic selling and a chain reaction of margin calls.”
Bob Zhang, CEO of Pine Street Capital in Beijing, noted, “The volatility may just be beginning,” explaining that he had reduced his net exposure to Chinese equities from 100% in January to 25% currently. He also added hedge positions to prepare for further declines in stock indices.
A Hong Kong-based portfolio manager at a major U.S. multi-strategy hedge fund commented, “We’re likely only in the middle of this selling wave,” describing it as a systematic process where different funds are gradually liquidating positions amid heightened volatility.
As of April 3, the balance of margin trading in China remained high at 1.9 trillion yuan (approximately $260 billion). South Korea is also experiencing similar conditions. After the temporary ban on short selling was lifted, margin call-related sell-offs between April 1–3 reached 28 billion KRW, far exceeding the 11.5 billion KRW recorded for the entire month of March, and marking the highest figure since September 2023.
