Asia-focused hedge funds have cautiously re-entered markets following a sharp retreat sparked by the Trump administration’s imposition of sweeping tariffs earlier this month, according to a report by Reuters citing a client note from Morgan Stanley’s prime brokerage unit.
The note reveals that managers have selectively added long exposure in Japan and India, both seen as relative safe havens amid escalating US-China trade tensions. The move follows a swift de-risking at the start of April, when US President Donald Trump triggered market turmoil with his so-called “Liberation Day” tariffs.
In addition to Japan and India, hedge funds were net buyers in Taiwan, largely due to short covering, while continuing to trim positions in Australia and China, Morgan Stanley said.
Japan’s Nikkei 225 has already erased the losses suffered after the 2 April tariff announcement and is slightly positive for the month. India’s Nifty 50 has climbed more than 3% in April, leading the regional rebound and attracting fund flows from managers betting the country will strike a favourable trade deal with the US.
In Japan, hedge funds were active buyers of materials, technology, and industrials, while in China, sentiment remains heavily skewed to the downside, with increased shorting of consumer discretionary names, according to the bank.
The US hiked tariffs on Chinese goods to 145%, prompting Beijing to respond with 125% retaliatory duties. The worsening trade dispute has cast a shadow over China’s near-term macro outlook, with economists forecasting a notable slowdown in Q2 data.
A separate note from Goldman Sachs reported that Chinese equities – particularly Hong Kong-listed and US-traded names – were the largest source of net hedge fund selling in Asia for the month up to 24 April.
