GS flow and positioning observations

GS flow and positioning observations:

"Any references to we/us/our refers to the desk"

Sean Navin – Sales Trading HK:

1) FLOWS SLOW AFTER DIFFICULT JULY: Over the past week the desk saw notional traded retract, coming in here -5% vs. our previous 3 week average. Over this time period, we were net to sell -$2.1 bn which was driven by selling in China -$885 mil, Korea -$477 mil and Hong Kong -$353 mil vs. buying in Singapore +$63 mil and India +$60 mil. The desk was net to sell in almost all thematic sectors with the most selling coming through Info Tech -$531 mil and Materials -$348 mil. Although the sell skew continues throughout the region, the size and pace of the selling abated this week after what was a difficult July for investors. Speaking of which, the desk saw around -$9 bn of net selling across the region in July. July was the second largest net sold month of the year for our pad (June being the largest). For more on the July performance and to give scale to the selling pressure in the region we can look at our PB insights. Asia Focused Fundamental L/S managers experienced their largest monthly drawdown in our records, and were down 15.2% in July, mainly led by long side losses. Similar to previous months, dispersions among managers continued to be wide in this month with larger managers invested in the AI theme seeing larger drawdowns. Simple average drawdown for the month ended at -6.8%, Median drawdown was at -3.8% vs. the weighted average drawdown at -15.2%. Despite these moves, YTD performance continues to show a significantly higher weighted average estimate (22.2%) vs lower simple average (13.6%) and median (5.5%) estimates. Asian equities saw large net selling flows (Z-score - 2.3 over 5 years), coupled with the largest risk-off flows in our records (Z-Score -1.9 over 5 years). Long sales dominated the net selling flows. After a second consecutive month of large selling flows, the region remains net sold YTD. De-grossing activity was seen in the region for the first time in 15 months, and saw a reversal of 65% of the risk-on flows seen in June. YTD flows remain heavily risk-on. Net selling flows for the month were led by China, Korea, Taiwan and Japan. Risk off activity led by China and Japan. Korea and Taiwan saw risk on flows for the month led by short sales.

Source: GS PB Past Performance is not Indicative of Future Returns

2) CHINA STABLE: CSI 300 -0.65% WTD. After a rough July amid the global risk-off selloff, A-shares have started to stabilize in August alongside a recovery in global markets. The July correction was particularly pronounced in the tech-heavy ChiNext and STAR 50, which bore the brunt of the drawdown given heavier exposure to high-beta tech names favored by both retail and institutional investors. The selloff was accompanied by a sharp contraction in liquidity. This week's average daily trading volume was still at 2.4 Tn Rmb (vs average daily T/O of 2.73 Tn in 1H26), reflecting subdued participation across the market. Despite the lower headline turnover, trading activity remains heavily concentrated in tech names. Looking at T/O contribution by index - ChiNext has been taking around 25% with that number even trended higher this week, as the potential FCC ban on Chinese optical components put index heavyweights such as Innolight and Eoptolink under spotlight. STAR board on the other hand, saw a modest drop this week after hitting a recent peak on July 27. Still, the broader trading pattern suggests tech-heavy indices remain the center of market attention. Deleveraging has been another defining feature of the July selloff. Outstanding margin financing balance fell from around 3 Tn Rmb at the start of July to 2.58 Tn Rmb as of Aug 3, marking one of the sharpest contractions in years (Chart below). That said, the trend has begun to reverse this week, with margin financing returning to net inflows, though at a relatively measured pace. Margin buying as % of total T/O has also recovered to around 9.3% in the latest print. However, the composition remains highly concentrated - Info Tech continues to account for ~50% of margin buying, vs around 30-40% in Jan/Feb this year. That said, though the…