Hedge Funds Flock to Invest in Asian Stocks

Hedge funds showed a preference towards Asian emerging markets in the week of February 15th, investing heavily in company stocks in China, Korea, Taiwan, and India. This trend occurred just before China reduced its benchmark mortgage rate, according to research conducted by Goldman Sachs.

In a note published on Friday and shared with Reuters on Monday, Goldman Sachs reported that Asia was the region with the most net-bought by hedge funds tracked by its prime brokerage, meaning that buyers outweighed sellers. On Tuesday, China's central bank announced the largest-ever reduction in the benchmark mortgage rate, lowering the five-year loan prime rate to 3.95 percent from 4.20 percent.

The ailing property sector in China remains a significant drag on the economy and market sentiment. In 2023, new home prices saw their worst declines in nine years, while the stock market has been struggling since hitting five-year lows on February 5th.

Andy Maynard, head of equities at investment bank China Renaissance, expressed that the rate cut had a positive impact on the market. He stated, "Overall, positive, showing the commitment and stature from both policymakers and central banks in terms of support and stability to the market and injecting a measure of support. This follows from very good consumer and retail numbers over the Chinese New Year period."

According to Goldman Sachs, the hedge fund trades consisted almost entirely of long positions, which are bets that an asset price will rise. The region was net-bought for the fourth consecutive week, with China, Korea, Taiwan, and India all being net accepted on the week, led by long buys. The bank stated that this outweighed the modest net selling of company stocks in Thailand.