In July, the flash crash of tech stocks left "aftereffects"! JP Morgan warns: Hedge funds suffered "structural" heavy blows, and tech stocks may become more "retail-driven" and more volatile in the future.

In July, the global technology sector experienced a fierce sell-off. A recent assessment report released by JPMorgan highlights that this plunge may be profoundly changing the market structure of tech stock tradinghedge funds' participation ability may structurally decline, while retail investors' influence is expected to expand further, potentially increasing volatility in the tech sector. JPMorgan strategist Nikolaos Panigirtzoglou cited data from Pivotal Path in a report to clients on Wednesday, indicating that long-short hedge funds focused on technology, media, and telecommunications stocks lost over 10% in July. Notably, this drawdown does not yet account for the recently spotlighted Situational Awareness fund, which was forced to sell off most of its publicly traded stock portfolio last week after a severe sell-off in semiconductor and tech stocks. Panigirtzoglou believes this suggests that other long-short hedge funds focusing on tech stocks may also have experienced forced liquidations in semiconductor and memory chip stocks. The intensity of the tech stock plunge over the past month has shocked the market. Stocks in the semiconductor and memory chip sectors, which had previously set record highs, collectively plummeted in July, as investors pulled out of previously leading AI concept stocks due to concerns about excessive capital spending in the AI field. The Philadelphia Semiconductor Index fell approximately 21% in July, marking the largest single-month decline since 2008. According to another report from JPMorgan, global hedge funds yielded nearly 3% of their gains for the year due to the liquidations associated with tech-related trades in July, but they still cumulatively rose about 8% for the year. Among them, global quantitative equity hedge funds averaged a loss of 5% in July, while Asia-Pacific stock-picking funds faced an average loss of up to 9.4%. JPMorgan noted that momentum trading was the primary source of losses during this periodmomentum strategies based on the belief that "past winners will continue to outperform" suffered a systemic collapse in July. JPMorgan warned in its report that the severe losses in July may compel hedge funds to implement stricter risk management frameworks and concentration limits, thereby limiting their ability to hold high-volatility tech stocks. Additionally, prime brokers may reduce the balance sheet space allocated to such strategies. Panigirtzoglou wrote in the report, "If this assessment proves correct, and there is a structural contraction in hedge funds' exposure to tech stocks, then tech trading will become more reliant on retail investors in the long term, making it more susceptible to volatility shocks brought on by leveraged ETFs, retail options buying, and retail financing accounts."