Asian hedge funds have reduced their cash holdings and bought more securities since March, indicating more optimism about financial markets, said Morgan Stanley.
“Gross exposure, which has been trending down since August of last year, actually started to increase in the beginning of April,” Kurt Baker, Asia-Pacific head of prime brokerage at the investment bank, said at a conference in Shanghai yesterday.
Total investment by hedge funds using Morgan Stanley as a prime broker, including securities they are holding plus borrowed stocks they have sold in anticipation of their prices going down, has risen by 10% from the trough in late March.
Fund managers reduced their investments and held a record amount of cash earlier as global markets fell amid a credit crisis triggered by the collapse of US house prices. The MSCI World Index slumped as much as 18% by 17 March from a one- year peak in October as losses by banks and securities firms linked to US mortgages mounted.
“2008 looks like it will be a defining year for Asian hedge funds,” Baker said. “The challenge is for managers to perform in the face of difficult markets.”
Asian hedge funds posted a negative return of 5.6% this year, the worst first four months in at least eight years, preliminary data from Eurekahedge shows. The Singapore-based data provider’s world hedge fund index lost 1% in the period.