Hedge Funds Dump Tech Stocks in Japan, Hong Kong Amid Selloff

URGENT UPDATE: Hedge funds have swiftly exited technology stocks in Japan and Hong Kong, according to a recent Goldman Sachs note, as market concerns over inflated tech valuations escalate. This move comes just before significant declines in the tech-heavy Hang Seng and Nikkei indices, which both experienced troubling downturns in the past two trading sessions.

Last week, hedge funds significantly reduced their long positions in Hong Kong while ramping up short bets in Japan. The Nikkei dropped more than 1% on Monday, mirroring the decline of tech stocks on Wall Street, as investors grapple with fears surrounding stretched valuations and an anticipated interest rate hike from the Bank of Japan later this week.

In a note dated December 12, seen by Reuters, Goldman Sachs highlighted that Asia was the most net sold region, with investors fleeing both emerging and developed market stocks. The trend of divesting from technology and consumer stocks intensified just ahead of a selloff on Friday, driven by anxiety over a potential AI bubble. The Philadelphia SE semiconductor index plunged more than 5% on the same day, marking a significant shift in market sentiment.

Japan’s banking sector, however, showed resilience amidst the tech exodus, with hedge funds net buying equities in industrial, financial, and materials companies. This shift was bolstered by the Bank of Japan’s quarterly Tankan survey, which indicated that sentiment among large manufacturers has soared to a four-year high. Following this news, Japanese banking shares rose by 2%, reflecting optimism ahead of the expected interest rate increase.

Meanwhile, China and Hong Kong stocks continued to face downward pressure. A combination of lackluster economic data coupled with rising default risks from property developer Vanke dampened market confidence. In fact, hedge funds have net sold Chinese equities for four of the past five weeks, further illustrating the growing apprehension among investors.

As the situation unfolds, market watchers are keenly observing the implications of these hedge fund activities. The focus now shifts to the Bank of Japan’s upcoming decisions and how they will shape market recovery or further selloff. Investors are urged to stay alert as these developments continue to impact financial landscapes across Asia.

Stay tuned for more updates as this story develops.