Global hedge funds bought a record amount of Asia equities in the week ending February 13, according to a Goldman Sachs client note. The trades wagered that stock prices would rise, particularly in emerging markets. This record buying spree focused on Korea, Taiwan, and China. It occurred despite a sharp global selloff in tech shares on Friday driven by AI investment concerns. Consequently, hedge funds are placing a significant bet on Asian markets decoupling from broader tech volatility. Exposure to Asia equities reached its highest level since at least 2016, Goldman said.
The buying spanned most sectors, including real estate, technology, industrials, and consumer discretionary shares. Financials were the notable exception. Hedge funds also showed “modest selling” in India. The bullish positioning follows strong weekly performances in several Asian markets. Japan’s Nikkei gained around 5%. Taiwan’s index added approximately 5%. Korea’s Kospi surged over 8% during last week’s trading. These returns likely attracted fund flows. The Goldman note did not offer a specific explanation for the regional preference, but the combination of strong momentum and attractive valuations appears compelling.
Contrast with U.S. Positioning
The hedge fund buying in Asia equities contrasts sharply with recent U.S. positioning. Across the Pacific, after four consecutive weeks of net selling, funds had only slightly more buyers than sellers of U.S. equities. While U.S. technology stocks saw the largest net buying since December 2021, they still have more sellers overall. U.S. consumer discretionary stocks were the most net sold. Hedge funds staged their largest move out of that sector in more than five years. This divergence suggests funds see greater opportunity in Asia, possibly due to valuation gaps, economic reopening momentum, or relative insulation from AI disruption fears that have hit U.S. tech.
Leverage and Risk Appetite
Gross leverage levels, an indicator of risk appetite, rose to a five-year high of 307%. This is up from 301.2% the previous week. The increase shows hedge funds are using more borrowed money to amplify their bets. The record buying in Asia equities is therefore not just a shift in allocation but a leveraged bet on continued outperformance. Higher leverage amplifies both gains and losses. It indicates conviction in the trade but also increases vulnerability to sharp reversals. The focus on Korea, Taiwan, and China suggests funds are comfortable with the geopolitical and regulatory risks inherent in those markets.
Implications for Asian Markets
The record inflows have significant implications for Asian stock markets. They provide liquidity and momentum, potentially attracting additional investors. Korea’s Kospi, already up over 8% last week, could see further gains if the buying persists. Taiwan’s tech-heavy index benefits from its critical role in the global semiconductor supply chain. China’s market, despite ongoing economic challenges, appears to be attracting hedge fund interest, possibly on valuation grounds or expectations of policy support. The modest selling in India suggests funds are rotating out of one of Asia’s best-performing markets into perceived value elsewhere. This could cap Indian gains while supporting the targeted markets.
AI Concerns and Sectoral Impact
The global selloff in tech shares on Friday underscores the market’s anxiety about AI investment and disruption. Yet hedge funds buying Asia equities appear to be distinguishing between different tech exposures. They bought tech shares in Asia while remaining cautious on U.S. tech. This may reflect a view that Asian tech companies, particularly in semiconductors, are enablers of the AI revolution rather than disruptees. Taiwan’s chipmakers and Korea’s memory manufacturers are essential to AI infrastructure. Their earnings benefit directly from AI investment. U.S. software companies, in contrast, face the threat of AI replacing their products. The hedge fund positioning suggests this nuance is driving capital flows.
Outlook for Continued Flows
The record buying may continue if Asian markets maintain their relative strength. However, risks abound. Geopolitical tensions, particularly around Taiwan and the South China Sea, could reverse sentiment. China’s economic recovery remains uneven, and policy support may disappoint. A sharp reversal in global tech sentiment could spill over into Asia despite the perceived differentiation. Hedge fund flows are notoriously fickle and levered. The same funds that bought aggressively could sell just as quickly. For now, the data shows a clear vote of confidence. Asia equities have captured the attention of global speculators. The coming weeks will reveal whether this is the start of a sustained trend or a crowded trade poised for a pullback.
