Under the impact of tariffs, Asian hedge funds are adjusting their portfolios to hedge and increase their exposure to Japanese and Indian assets.

Morgan Stanley said that Asian hedge funds cautiously returned to the market last week, focusing on increasing their positions in Japanese and Indian stocks. These funds had quickly reduced their risk exposure when US President Trump suddenly announced comprehensive tariffs at the beginning of the month. A brokerage memorandum sent to clients by the investment bank on Tuesday showed that hedge funds also bought stocks in Taiwan (mainly driven by short covering), but reduced their holdings in Australia and mainland China. With global investors seeking safe havens amidst market turbulence and dwindling confidence in US assets, the Japanese and Indian markets stood out. The benchmark Nikkei 225 index in Japan has completely recovered all losses since Trump announced his "Tariff Day" policy on April 2, with a slight increase this month; the Indian stock market was one of the first to rebound globally, with the NIFTY 50 index rising by over 3% this month. Investors are betting that these countries will successfully reach trade agreements with the US during the 90-day tariff truce period, during which time only China will face increased tariffs from the US. Morgan Stanley stated that hedge funds have heavily bought Japanese materials, technology, and industrial stocks, but have sold or increased bearish bets on non-essential consumer sector stocks in China. In April, the US raised tariffs on China to 145%, prompting China to retaliate with 125% retaliatory tariffs on US imports, escalating the trade war between the world's two largest economies. Another report from Goldman Sachs showed that as of April 24, Chinese stocks led the net selling trend among Asian hedge funds for the month, with major sell-offs focused on Hong Kong stocks and Chinese stocks listed in the US. Morgan Stanley stated that although leverage levels among Asian hedge funds are recovering, they are still "significantly lower than before the tariff sell-off".