Investing.com – Hedge funds began reducing their exposure in Asian markets starting in the fourth week of March following Middle East disruptions, according to Morgan Stanley’s Prime Brokerage Content Group.
The de-grossing activity continued through the week ending April 3, with Korea and China A shares leading the reduction in directional exposure. The selling represented a pullback from positions held in the region.
Technology and semiconductor stocks drove the majority of outflows in Asia excluding Japan last week through both long position unwinds and new short positions. Gross and net exposure in the information technology sector remained at the 100th and 99th percentile respectively since 2010 despite the selling.
Materials and industrials sectors also experienced smaller outflows during the period. The hedge fund activity reflected a broader reduction in risk-taking across Asian equity markets.
Morgan Stanley expects hedge funds to reengage in Asian markets following overnight ceasefire news, with a rally anticipated in Japan, Korea, Taiwan and other high-beta emerging markets.
In other recent news, Goldman Sachs has revised its 2026 forecast for US consumer discretionary cash inflow growth, lowering it to 4.2% from the previous estimate of 5.1%. This adjustment is attributed to rising oil prices influenced by the ongoing conflict in the Middle East and disruptions in the Strait of Hormuz. Meanwhile, JPMorgan Chase’s data indicates an acceleration in US consumer spending growth to 5.8% year-over-year in March, with discretionary spending growth outpacing non-discretionary spending. Wolfe Research has highlighted potential downside risks for the , suggesting a possible compression to around 18 times next-twelve-month earnings due to ongoing geopolitical tensions. Additionally, Goldman Sachs has noted a decrease in bond yields amid these tensions, with 10-year Treasury yields dropping 10 basis points to 4.32%. The firm also downgraded its eurozone growth forecast for the fourth quarter of 2026 to 0.7%, down from 1.4%, as the war with Iran continues to impact oil flows through the Strait of Hormuz. These developments reflect the broader economic uncertainties facing global markets.
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