Last week, hedge funds anticipated progress on the U.S. trade deal with China, which Treasury Secretary Scott Bessent provided an update on Monday. In a note dated Friday, Morgan Stanley reported that hedge funds, especially those based in the U.S., bought both U.S.-listed Chinese stocks and domestic A shares following promising signs about the possibility of a trade deal with China.
Read hedge fund letters here
On the other hand, hedge funds slashed positions in the majority of other areas of Asia, with Thailand, Hong Kong, India and Australia leading the way.
Bessent announces progress with China
On Monday, Bessent said the trade deal they reached with China over the weekend is another piece of the puzzle as the U.S. shakes off its dependence on products from China. Although the idea of the U.S. “decoupling” from its reliance on cheap Chinese imports has been in talks for years, progress has been slow, and CNBC reports that it’s unlikely to ever mean a total break from the country.
Bessent told CNBC’s Squawk Box that they “do not want a generalized decoupling from China.” Rather, he said they want a “decoupling for strategic necessities,” of which there was a shortage during the pandemic, when they “realized that efficient supply chains were not resilient supply chains.”
Hedge funds sold Europe
Meanwhile, hedge funds also bet on the trade deal with the U.K. while avoiding most of Europe, likely due to lack of progress on a deal. In fact, President Donald Trump even called the European Union “nastier” than China, giving hedge funds good reason to sell European stocks. Bessent has been silent on any trade news related to Europe, excluding the deal with the U.K.
Goldman Sachs reports that Europe was the only region net sold last week. In fact, it was net sold for the first time in four weeks on the back of short sales and, to a lesser extent, long sales, at a ratio of 2.6 to 1.
The most net sold countries were Germany, the Netherlands, Denmark, Luxembourg and Italy, with those sales outpacing buying in the U.K., Austria, Ireland and Switzerland.
Although Europe is still heavily net sold by hedge funds on Goldman Sachs’ Prime book year to date, net allocations to Europe as a percentage of the global book have risen this year, largely on the back of price movements and mark-to-market changes. As a result, the Prime book is now overweight Europe compared to the MSCI World Index by 4%.
