NEW YORK, July 25 (Reuters) - Computer-driven macro

hedge fund strategies on Wednesday sold $20 billion in equities

and are set to shed at least more $25 billion over the next week

after the stock rout, in one of the largest risk-unwinding

events in a decade, Morgan Stanley ( MS ) said in commentary to

institutional clients on Thursday.

After disappointing earnings reports from Tesla and

Alphabet, investors heavily ditched stocks on

Wednesday, with the tech-heavy Nasdaq Composite dropping 3.6% in

its worst day since October 2022.

"The volatility of the last two weeks started out being very

rotational," said the bank, referring to a recent investors'

rotation to small- from mega caps. "But that has now morphed

into a broad index deleveraging (on Wednesday)."

If volatility persists in the coming days, the sell-off

would rapidly increase, Morgan Stanley ( MS ) said in their commentary,

declining to comment further. An additional 1% day-drop in

global equities could spark sales of $35 billion and macro hedge

funds could dump up to $110 billion in a 3% day fall.

The main U.S. stock indexes were positive on Thursday

afternoon, after stronger-than-expected GDP data.

James Koutoulas, chief executive officer at hedge fund

Typhon Capital Management, told Reuters that even after

Wednesday's sell-off investors remained overweight in equities.

Historically, he said interest rate hikes have been followed by

economic downturns.

"It seems like investors are betting on bucking that trend,"

he said in a note to clients.

Hedge funds are turning more bearish, as they are mainly

reducing their long positions, or bets stocks will rise, while

keeping, and in some cases increasing, bets on shares they

believe will fall, according to Morgan Stanley ( MS ).

Portfolio managers mostly sold shares in the information

technology, consumer staples and material sectors.

Goldman Sachs ( GS ) also said its clients increased short

positions in the so-called macro products, such as large cap and

corporate bond exchange traded funds (ETFs).

PERFORMANCE

Following the market bloodbath, hedge funds' performance

ended Wednesday in the red, although overall they were able to

pare losses compared to the main stock indexes.

Global hedge funds fell 0.67% on average, according to

Morgan Stanley ( MS ), with equities long/short hedge funds in Americas

down the most, 1.04%.

The MSCI All Country World fell 1.67% on

Wednesday, while the S&P 500 was down 2.31%.

"Hedge funds are in the middle of the worst drawdown of an

otherwise positive year," said Mario Unali, head of investment

advisory at Kairos Partners.