Hedge Funds Flock Back to Asia as Bets Hit Five-Year High Amid Global Recalibration

17 June 2025

Photo: Michael Nagle/Bloomberg via Getty Images

Global hedge funds are making their most aggressive bets on Asia in over five years, marking a resurgence in investor confidence across key regional markets. According to a new report by Goldman Sachs, hedge fund trading activity across Asian equities surged between June 6 and June 12, with firms increasing both long and short positions. This spike in positioning reflects a broader rebalancing of global capital, as geopolitical pressures, currency shifts, and economic optimism converge to create fresh opportunity in Asia’s complex investment landscape.

The report highlights that hedge funds have been particularly bullish on markets like Japan, Hong Kong, Taiwan, and India, while at the same time ramping up bearish positions in mainland Chinese equities. Goldman Sachs analysts noted that the intensity of hedge fund flows reached levels not seen since early 2020, driven by a mix of regional tailwinds and shifting global sentiment.

The backdrop to this shift is multifaceted. One factor driving the repositioning is increasing optimism over potential easing of tensions between the United States and China. Signs of progress in trade discussions and cooperative posturing around global security concerns have created a slightly more stable environment for cross-border investing. Although uncertainty remains high, fund managers appear more willing to accept the risks in exchange for potential upside across Asian assets.

Additionally, the election of a market-friendly government in South Korea and improving macroeconomic data in India have bolstered sentiment in those regions. Investors are also betting on continued economic resilience in Japan, where long-standing structural reforms and recent corporate governance changes have started to yield results. As a result, Japanese equities have seen a resurgence in institutional interest, particularly in sectors like technology and industrials.

Meanwhile, the short positions in China reflect ongoing investor caution regarding the mainland’s uneven recovery post-COVID, persistent deflationary pressures, and regulatory unpredictability. Despite Chinese authorities' efforts to inject liquidity into the system and support real estate and tech sectors, foreign capital remains hesitant. Goldman Sachs noted that the volume of short trades in China had grown substantially during the monitoring period, suggesting continued skepticism over the near-term outlook.

Currency dynamics have also played a role in the hedge fund shift toward Asia. With the U.S. dollar showing signs of softening, investors have turned toward emerging market currencies and equities that could benefit from a weaker dollar. The yen, in particular, has been under close watch. Its recent depreciation against the dollar has improved Japanese export competitiveness and attracted short-term foreign capital into Tokyo’s markets.

The market reaction has been visible. The MSCI Asia-Pacific Index rose 2.5 percent in the first half of June, bringing total gains since April 7 to more than 24 percent. These figures suggest that investor confidence in Asia is not merely speculative but supported by solid capital inflows and macroeconomic validation. Tech-heavy benchmarks, such as Taiwan’s TAIEX and South Korea’s KOSPI, have been among the top performers, thanks in part to the global AI-driven demand cycle and a rebound in semiconductor production.

The surge in hedge fund activity also reflects the broader evolution of Asia’s role in the global investment matrix. For much of the last three years, Asia’s markets struggled under the weight of pandemic-related disruptions, geopolitical instability, and a strong dollar. Now, with inflation moderating and growth rebounding in selective economies, asset managers are finding renewed value in the region.

Goldman’s report suggests that this repositioning may not be temporary. Many hedge funds are diversifying away from traditional Western equities, which have shown signs of saturation or volatility due to monetary tightening cycles. Asia offers both diversification and upside potential, particularly in consumer sectors, infrastructure, and clean energy, which are seeing significant policy support in countries like India and Vietnam.

However, analysts also warn of risks. Geopolitical flashpoints from Taiwan Strait tensions to North Korea’s recent missile activities continue to cast long shadows. Moreover, the fragmented nature of Asia’s markets means that a broad bullish trend does not guarantee consistent performance across all geographies. Investors must be precise in their exposures, carefully navigating local political dynamics and regulatory frameworks.

Still, the overall mood among hedge funds is clear: Asia is back on the radar. Whether it’s the promise of growth in India, the resilience of Japan’s corporate sector, or the relative undervaluation of certain Hong Kong equities, the region is once again being seen as fertile ground for alpha generation. For global investors seeking to pivot or diversify amid a rapidly changing economic environment, the allure of Asia appears stronger than it has in years.

As one senior Goldman Sachs strategist noted in the report, “The re-acceleration of interest in Asia speaks to a more fundamental recalibration of risk appetite. Hedge funds are positioning not just for the next quarter, but for the next era of global growth.”