Business Funding

Hedge funds are the investment portfolios that are available only to investors who have at least $1 million in their assets. Because investors have stakes huge amounts of money into the hedge funds market, they have a good reason to get nervous about new rounds of hedge funds selling. Rumors are already out that around 30% of the hedge funds are going to liquidate and close, leading it worsening of the situation. Since the hedge funds market holds around $2 trillion of assets, 30% of liquidation would be a great deal.

Recent past has been utterly brutal, especially in case of Asian markets. Massive redemptions in the hedge fund market are taking place, only involving the foreign assets. Hot money in the years 2006 and 2007 was in the emerging markets and most of the action took place in Singapore, India, China and Brazil.

Staggering amounts of money were flowing to these countries and most of it came from the Wall Street. Because of all this, hedge fund leverage has been turned by the credit crisis and margin loans to the hedge funds are called in.

In addition to that, investor redemption’s are pressurized and many funds are forced to be massive sold. Because a lot of money went overseas in the past few years, it is not a surprise that Brazilian market is down by 59%, Shanghai index has witnessed a decline of 72%, Japan stocks downed by 60% and Hong Kong by 65%.

Now that there is short supply of dollars, we never know how far the markets will fall. The massive international selling should not be considered as a sign of global depression, but only about fundamental valuations. There are other fundamental measures that will keep the money coming in the US market. While the economy of US can suffer recession, the effects may be mitigated through its diversity and size. Dislocations in finance and housing can be replaced eventually by power in exports and energy. Most of the emerging economies do not have such a margin, making the equity markets much more vulnerable.

As hedge funds liquidation has continued roiling in the overseas markets, the US market has still been stabilized. The strengthening of the dollar indicates that safety has been balanced with the panicked requirement to sell. The US market is able to respond to the bad news in a positive way and therefore, there is no need to panic because of offshore moves of the market.