Although China And The US Just Reached A Newest Agreement, Hedge Funds Already Got A Head Start

China-US trade negotiations reached an important consensus, boosting short-term optimism. However, in a latest report, Morgan Stanley pointed out that hedge funds- especially those in the U.S.- increased their bullish bets on Chinese stocks last week, hoping for progress in the trade talks between the U.S. and China.

Over the past week, the MSCI China Index and the CSI 300 Index rose by 2.4% and 1.9%, respectively.

In a report released last Friday (May 9), Morgan Stanley noted that U.S. hedge funds bought stocks traded in the U.S. and A-shares in China after seeing signs of a potential trade deal between the two countries, "re-engaging" with China.

The bank added that, by contrast, hedge funds reduced their positions in most Asian regions, including Thailand, Hong Kong (China), India, and Australia.

Last weekend, China and the U.S. held high-level economic and trade talks in Geneva, Switzerland. He Lifeng, China's lead representative and Vice Premier of the State Council, stated on the evening of the 11th that the talks were candid, in-depth, and constructive, resulting in important consensus and substantive progress. U.S. Treasury Secretary Janet Yellen also said that the trade negotiations with China had made substantive progress.

On Monday, the two sides issued a joint statement announcing that they had revised previous tariff measures. The U.S. side will retain 10% tariffs on imports from China, while suspending the remaining 24% tariffs for an initial 90-day period. China will implement reciprocal measures, retaining 10% tariffs on imports from the U.S. and suspending the remaining 24% tariffs for an initial 90-day period.

Morgan Stanley added that hedge funds' exposure to China remains far below peak levels.

Michael Dyer, Investment Director of the Long-Short Multi-Asset Strategy at M&G Investments, said his firm recently increased its exposure to China. He also mentioned the current low valuations of Chinese stocks and the relatively light positioning of global investors.