In a notable shift in investment strategy, hedge funds have accelerated their purchases of global equities at the fastest pace seen in nearly a year, according to a recent report by Goldman Sachs. This surge in buying activity spans major stock markets from the U.S. to Japan, signaling a growing bullish sentiment among investors.

Goldman Sachs highlighted in a note from their prime services team, dated March 6, that February witnessed the most substantial monthly net inflow of hedge fund investments into global stocks since March 2023. This upturn in hedge fund engagement was recorded across all significant regions, underscoring a widespread optimistic outlook on equities.

While specific details regarding the volume of purchases were not disclosed, the overall trend points to a robust confidence in the equity markets. This buoyancy in global equities comes as investors anticipate upcoming Federal Reserve rate cuts and a surge within the tech sector, contributing to a four-month consecutive rise in the MSCI World Index.

A notable increase in hedge funds’ risk appetite was also observed, with Goldman Sachs reporting record highs in gross leverage levels. Regionally, U.S. stocks have become particularly attractive, marking the first net purchase by hedge funds in seven months. This renewed interest has been largely fueled by significant investments in semiconductor-related stocks, propelled by the ongoing artificial intelligence (AI) boom. However, Goldman Sachs noted that the “Magnificent 7,” comprising the largest U.S. companies by market value such as Apple and Nvidia, have seen relatively stable collective inflow this year, with a preference for smaller tech firms emerging among fund managers.

In Asia, Japan stands out with the most substantial hedge fund net buying in eight months, as the Nikkei Index hits record highs. The Japanese equity market’s robust performance throughout 2023 is attributed to the country’s gradual emergence from deflation and corporate governance improvements. Despite the significant net allocation to Japanese stocks surpassing 5-year averages, Goldman Sachs suggests there is still ample room for further market rallies.

Chinese equities continue to draw hedge fund interest for the third consecutive month, while investments in Europe and emerging markets excluding China have reached approximately 5-year highs. This widespread hedge fund activity underscores a global shift towards equities, highlighting a period of increased market dynamism and investor confidence.

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