Hedge funds are showing record-breaking confidence in Asian stocks, pushing their bullish bets to the highest level in nearly a decade, according to a recent report by Goldman Sachs. The data, tracking hedge fund activity from February 14 to 20, 2025, reveals that long positions in Asian equities outpaced short positions by a ratio of 1.5-to-1—the highest since 2016.
Surge in Investment Driven by China, Hong Kong, and Japan
The biggest beneficiaries of this investment wave have been China and Hong Kong, which together accounted for nearly half of all hedge fund inflows into Asia during the period. Japan also saw significant interest, receiving 23% of the total investments, while Taiwan and Australia attracted notable attention. This surge has made Asia the most “overweight” region in hedge fund portfolios compared to the MSCI AC World Index, indicating a major shift in global investment patterns.
This shift comes at the expense of North America, where hedge funds have been pulling out capital to fuel their growing appetite for Asian markets.
Tech Boom Fuels Market Optimism
A major factor behind this bullish sentiment is the rise of DeepSeek, a groundbreaking technological innovation that has triggered a wave of excitement in the region’s tech sector. The Hang Seng Index, a key indicator of Hong Kong’s stock market, soared to a three-year high of 23,688, while its tech sub-index recorded six straight weeks of gains.
Leading tech giants like Alibaba have seen their stock prices skyrocket, with Alibaba alone gaining more than 60% year-to-date. Investors are calling this renewed excitement “animal spirits,” as optimism spreads across Asian markets.
U.S. Policy Shift Sparks Sell-Off
However, the enthusiasm has not been without setbacks. This week, markets in Hong Kong and mainland China saw sharp declines after the Trump administration announced the “America First Investment Policy.” The new framework aims to tighten restrictions on investments in China and strengthen the U.S. economy. The announcement sent shockwaves through global markets, causing investors to reassess their bullish bets on Asia.
Foreign Investors Continue Selling in India
While hedge funds are pouring money into Asia, foreign institutional investors (FIIs) have been pulling out of Indian markets. After selling stocks worth ₹81,903 crore in January, FIIs offloaded another ₹30,588 crore in February (as of the 21st), taking the total outflow in 2025 to ₹1,12,492 crore, according to NSDL data. This heavy selling has weighed on Indian markets, with the Nifty 50 index showing a negative return of 4% year-to-date.
A Turning Point for Asian Markets?
Despite the recent sell-offs, the data suggests that Asian equities are at a crucial turning point. Hedge funds are betting big on the region’s growth, driven by technological breakthroughs and shifting global investment trends. However, geopolitical risks and market volatility remain key concerns. Whether this rally signals a lasting transformation or a speculative bubble remains a hot topic among investors.
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