Staff Reporter
Hedge funds in Asia have demonstrated resilience amid the market selloff in March, outperforming their counterparts in the United States. This relative strength is largely attributed to the favorable performance of Chinese stocks, which have attracted a wave of global investors.
According to a report from Morgan Stanley’s prime brokerage dated March 12, Asia-focused hedge funds recorded an average loss of 0.71% up until the 10th of March. In contrast, U.S. hedge funds faced a steeper decline of 2.6%, while their global counterparts saw a 1.7% drop.
Despite the pressures from the market downturn, Asia hedge funds have widened their year-to-date lead over U.S. funds, signaling a growing perception of the region as a safe haven for investors concerned about a potential recession in the United States.
“Asian equity long/short strategies, particularly those managed by single-country specialists, have shown remarkable strength this year,” noted Nick Silver, head of Asia Pacific prime services at BNP Paribas. “This region appears somewhat insulated from the recent market turbulence.”
Funds in Asia that engage in both long and short stock strategies, as tracked by Morgan Stanley, have gained 2.8% year-to-date, whereas U.S. hedge funds have faced a 2.6% loss.
Goldman Sachs reports that global hedge funds moved swiftly to cut risk and losses, leading to the largest two-day unwinding of stock positions in four years on March 7 and March 10. The tech-heavy Nasdaq experienced a significant drop, plummeting 4% on Monday, marking its steepest one-day percentage decline since September 2022.
In Asia, the repercussions of this unwinding extended to multi-manager funds trading in Japan, prompting them to reverse their heavily bullish positions on Japanese stocks, according to sources familiar with the situation. However, the primary impact has been felt in U.S. investments.
Morgan Stanley has estimated that year-to-date hedge fund purchases of Chinese stocks are nearly double those seen during the market rally in September 2024, as accelerated losses on Wall Street have spurred a shift in capital from investors.
The Hang Seng Index in Hong Kong—which includes many major Chinese firms—has surged approximately 20% since Donald Trump took office in January.
Additionally, hedge funds are eager to re-enter the South Korean market following the lifting of a short-selling ban set for March 31, according to Morgan Stanley.
Their current positioning in Asia has been notably light, enabling investors to act quickly and easily exit crowded long positions and shorts, as observed by Nick Silver, head of Asia Pacific prime services at BNP Paribas.
