Asian equity hedge funds posted strong gains in May, wiping out losses from tariff-related volatility in April. According to a Goldman Sachs report, fundamental long-short hedge funds focused on Asia have gained about 1.6% so far in May (data through May 22), pushing their year-to-date returns back to the first quarter’s high of 6.1%.
The rebound came amid a broad rally in regional markets, largely driven by a tentative agreement between China and the United States to reduce tariffs. This development helped many Asian fund managers recover lost ground from early April.
Performance by Country: China and Japan Lead Gains
By country, Goldman Sachs estimated that fundamental hedge funds focused on China returned 1.3% in May, while those specializing in Japanese equities gained 0.8%. However, these gains still lagged behind major regional benchmarks; for example, the MSCI Asia Pacific Index rose over 4% in May.
Patrick Ghali, managing partner at hedge fund advisory firm Sussex Partners, noted that for some funds, a swift “V-shaped recovery” has been elusive, partly due to sharp volatility that forced many to reduce positions earlier in the month.
Diverging Returns Reflect Varied Hedge Fund Strategies
The performance among Asian hedge funds has diverged since April depending on individual positioning and risk tolerance. Ghali expects this divergence to continue, with some funds benefiting more from the rally than others.
Goldman Sachs highlighted that the dispersion of returns is particularly pronounced among hedge funds trading Japanese stocks, suggesting a wide range of strategies and outcomes.
Hedge Funds Increasing Risk Appetite Despite Ongoing Uncertainty
Despite ongoing tariff tensions and geopolitical uncertainties, many Asian hedge funds are showing greater willingness to increase risk exposure. Goldman reported that net exposure to Asian stocks among these funds rose to 50.8% as of May 22, up from 46% at the end of April.
This increased positioning reflects hedge funds’ optimistic stance amid improving market sentiment and tentative progress in trade negotiations.
In summary, Asian equity hedge funds rebounded strongly in May, recovering April losses on the back of a market rally fueled by progress in U.S.-China tariff talks. While gains varied across funds and countries, overall risk appetite has increased, signaling confidence in the region’s growth prospects despite ongoing geopolitical challenges.
