Hedge funds scale back Asia exposure ahead of U.S. tariff announcement
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Hedge funds have significantly reduced their exposure to Asian equities in anticipation of the U.S. administration’s reciprocal tariff announcement scheduled for April 2. According to Morgan Stanley’s prime brokerage data, hedge funds adopted a defensive stance last week, cutting leveraged positions and aggressively selling equities across key regional markets.
The repositioning was most pronounced in South Korea, mainland China, and Taiwan, with increased short positioning observed in Japan. The move reflects growing concerns over trade-sensitive markets, particularly in economies with substantial export surpluses vis-à-vis the United States. China, Vietnam, Japan, and Taiwan remain among the largest net exporters to the U.S., a dynamic that amplifies their vulnerability to tariff escalations.
Since President Trump announced a 25% tariff on imported vehicles on March 26, Japanese and South Korean equity benchmarks have declined by 6% and 5%, respectively. Mainland China’s CSI 300 and Hong Kong’s Hang Seng Index also fell to near one-month lows on Monday as investors repriced geopolitical and trade risk.
Morgan Stanley estimates that Asia-focused hedge funds posted negative returns of 60 to 70 basis points last week, bringing average performance for March to -0.37%. The bank’s data also revealed a sharp 6 percentage point drop in net leverage across Asia, down to 61% — a clear indication of de-risking across strategies.
Regionally, hedge funds exited Korean equities ahead of the lifting of a five-year short-selling ban, unwound exposure to Chinese consumer sectors, and closed significant positions in Taiwanese names. The activity was primarily led by multi-strategy and macro funds, which were the most reactive to macroeconomic and geopolitical uncertainty.
While global equity positioning has generally shifted to risk-off, a separate note from Goldman Sachs highlights that net hedge fund selling in Asian markets reached its highest level since October 2024. These figures underscore the heightened sensitivity of the region to policy-driven volatility, particularly in the context of global trade realignments.
As investors await details from Washington, the strategic retreat by hedge funds reflects a broader recalibration of risk across equity portfolios exposed to export-dependent markets in Asia.
The repositioning was most pronounced in South Korea, mainland China, and Taiwan, with increased short positioning observed in Japan. The move reflects growing concerns over trade-sensitive markets, particularly in economies with substantial export surpluses vis-à-vis the United States. China, Vietnam, Japan, and Taiwan remain among the largest net exporters to the U.S., a dynamic that amplifies their vulnerability to tariff escalations.
Since President Trump announced a 25% tariff on imported vehicles on March 26, Japanese and South Korean equity benchmarks have declined by 6% and 5%, respectively. Mainland China’s CSI 300 and Hong Kong’s Hang Seng Index also fell to near one-month lows on Monday as investors repriced geopolitical and trade risk.
Morgan Stanley estimates that Asia-focused hedge funds posted negative returns of 60 to 70 basis points last week, bringing average performance for March to -0.37%. The bank’s data also revealed a sharp 6 percentage point drop in net leverage across Asia, down to 61% — a clear indication of de-risking across strategies.
Regionally, hedge funds exited Korean equities ahead of the lifting of a five-year short-selling ban, unwound exposure to Chinese consumer sectors, and closed significant positions in Taiwanese names. The activity was primarily led by multi-strategy and macro funds, which were the most reactive to macroeconomic and geopolitical uncertainty.
While global equity positioning has generally shifted to risk-off, a separate note from Goldman Sachs highlights that net hedge fund selling in Asian markets reached its highest level since October 2024. These figures underscore the heightened sensitivity of the region to policy-driven volatility, particularly in the context of global trade realignments.
As investors await details from Washington, the strategic retreat by hedge funds reflects a broader recalibration of risk across equity portfolios exposed to export-dependent markets in Asia.