Hedge Funds Boost Industrial Stocks to Five-Year High

Hedge funds have been aggressively buying into global industrial stocks, with net purchases reaching a five-year high. According to the latest data, the net inflow into industrial stocks last week was the highest since July 2020 and the second-highest since records began in 2016. This surge in buying activity indicates a strong bullish sentiment towards the industrial sector, which has been driven by various factors including economic recovery, infrastructure investments, and technological advancements.

The industrial sector has been a focal point for investors due to its potential for growth and resilience. The net buying spree by hedge funds suggests that they are optimistic about the future prospects of industrial companies. This optimism is likely fueled by the expectation of increased demand for industrial products and services as economies continue to recover from the pandemic. Additionally, governments around the world are investing heavily in infrastructure projects, which could further boost the demand for industrial goods.

From a regional perspective, the buying activity was most pronounced in North America, where both long positions were actively increased and short positions were covered. In Europe, the primary driver was the covering of short positions. The valuation advantages, improved corporate earnings, and accommodative policies have collectively boosted market sentiment. The current configuration of industrial stocks on the Prime platform is 5.8 percentage points higher than the MSCI Global Index, a level that has remained at the 99th percentile for five consecutive years.

The multiple space ratio for global industrial stocks has reached 2.25, the highest level since August 2022, placing it in the upper-middle range of the past five years. European corporate earnings are expected to improve significantly, with a projected 7.9% increase in earnings by 2025, a notable acceleration from the growth rates of 2024 and 2023. Policy easing and interest rate cut expectations are also supporting the upward trend in the stock market. In North America, the S&P 500 index has reached new highs despite uncertainties related to tariff policies and geopolitical risks. The ongoing AI boom is driving significant gains in tech giants, which in turn is boosting overall market performance.

Global energy transitions and supply chain restructuring are creating trillion-dollar infrastructure needs, with data centers, charging networks, and hydrogen facilities becoming key areas of competition for both public and private capital. This presents a broad development opportunity for related sectors within industrial stocks. It is recommended that investors focus on ETFs in sectors such as industrials and energy, such as the iShares Global Industrials ETF.

In terms of investment strategy, it is advised that investors focus on "Alpha" in 2025, aiming for stock performance that exceeds market averages, rather than relying on overall market "Beta" performance. This approach underscores the importance of identifying individual stocks with strong growth potential within the industrial sector, rather than simply following broader market trends.