Asia-focused hedge funds have fared better than their US counterparts during the recent market downturn, benefiting from a relative outperformance in Chinese equities as global investors shift capital into the region, according to a report by Reuters.
The report cites a Morgan Stanley prime brokerage note dated 12 March, as highlighting that Asia hedge funds posted an average loss of 0.71% for the month through 10 March. In contrast, US-focused hedge funds saw a 2.6% decline, while global peers fell by 1.7%.
Despite the broader market turmoil, Asia’s resilience is reinforcing its appeal as a potential safe haven for investors concerned about a US recession.
“Asian equity long-short strategies – particularly single-country managers – have been among the strongest performers this year,” said Nick Silver, Head of Asia Pacific Prime Services at BNP Paribas. “This region feels somewhat insulated from the recent market rout.”
Asia-focused long-short hedge funds as tracked by Morgan Stanley, have gained 2.8% year-to-date. In contrast, US funds have recorded a 2.6% decline.
The selloff has been exacerbated by aggressive tariff policies under US President Donald Trump, triggering sharp declines in US equities. The Nasdaq Composite dropped 4% on March 10—its worst single-day performance since September 2022—as hedge funds scrambled to cut risk exposure.
Global hedge funds saw their largest two-day unwinding of stock positions in four years between 7 March and 10 March, according to Goldman Sachs. While some multi-manager funds in Japan were forced to exit crowded long positions, the most severe casualties remained concentrated in US markets.
Morgan Stanley estimates that hedge fund inflows into Chinese stocks year-to-date have nearly doubled compared to the September 2024 rally. The Hang Seng Index, which tracks major Chinese firms listed in Hong Kong, has gained approximately 20% since Trump took office in January.
Hedge funds are also preparing to re-enter the South Korean market once the country’s short-selling ban is lifted on 31 March, positioning themselves for potential upside.
Silver noted that investor positioning in Asia has been relatively light, allowing funds to manoeuvre more quickly and avoid being caught in crowded trades. “People have been able to move around a lot quicker here,” he said.
