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Investing.com -- Hedge funds took a defensive position last week, shedding stocks and reducing leveraged positions in Asian markets, as per data from Morgan Stanley (NYSE:MS).
This move came ahead of the announcement of new reciprocal tariffs by U.S. President Donald Trump on April 2. South Korea, onshore Chinese markets, and Taiwan were the primary targets of this sell-off. Simultaneously, hedge funds increased their short bets in Japan.
The reciprocal duties, set to be imposed by Trump on Wednesday, could trigger a significant increase in tariff rates on several countries and disrupt the global trade system. Asian markets, being export-driven, are highly susceptible to tariff risks. According to a recent U.S. Treasury report, China, Vietnam, Japan, and Taiwan have the largest trade surpluses with the U.S.
Since President Trump announced a 25% tariff on imported cars on March 26, Japanese and South Korean stocks have fallen by 6% and 5% respectively. Additionally, China’s CSI 300 Index and Hong Kong’s Hang Seng reached nearly one-month lows on Monday due to tariff concerns.
Morgan Stanley analysts noted that "Asia hedge funds had a tough week," estimating a loss of about 60 to 70 basis points in returns last week. This resulted in these funds ending the month with an average decrease of 0.37%.
The sell-off indicates that hedge funds were attempting to minimize losses ahead of Trump’s comprehensive tariffs. Morgan Stanley noted a sharp drop in "net leverage (across Asia)," with a decrease of 6 percentage points to 61% last week from the week before.
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