Hedge funds reduced exposure to tech stocks in Japan and Hong Kong last week, just ahead of a sharp decline in the Hang Seng and Nikkei indices, according to a Goldman Sachs client note.
The move came as concerns over stretched tech valuations and a potential AI bubble intensified.
🔹 Key Flow Signals
- Asia was the most net-sold region globally, across both developed and emerging markets
- Hedge funds sold long positions in Hong Kong
- Added short positions in Japan, particularly in tech and consumer stocks
- Selling accelerated ahead of Friday’s tech-led selloff, when the Philadelphia Semiconductor Index fell over 5%
🔹 Japan: Rotation, Not Exit
While tech was cut, hedge funds rotated into cyclicals in Japan:
- Industrials, financials, and materials saw net buying
- Japanese bank stocks rose ~2%, supported by expectations of a Bank of Japan rate hike
- The BOJ’s Tankan survey showed big manufacturers’ sentiment at a four-year high, reinforcing the trade
🔹 Broader Asia
- Chinese equities were net sold for the fourth time in five weeks, pressured by weak data and property-sector risks
- Indian equities also saw lighter selling, mainly in industrials and materials
🔹 Takeaway
Hedge fund flows suggest early positioning ahead of valuation-driven corrections, with capital rotating out of tech and into rate-sensitive and cyclical sectors, rather than a wholesale exit from Asia.