Key Points:
- Nikkei 225 rebounds to 35,704 after hitting 35,087.
- Morgan Stanley reports hedge fund net leverage dropped to 61% across Asia.
The Nikkei 225 closed at 35,704.15 on Tuesday, posting a modest recovery after touching an intraday low of 35,087.15, as markets stabilised following a week of aggressive hedge fund outflows. The index had dropped more than 6% since March 26, when U.S. President Donald Trump announced a 25% tariff on imported vehicles, triggering risk-off sentiment across Asia.
According to a Morgan Stanley prime brokerage note, hedge funds aggressively reduced their exposure across the region in anticipation of further tariff-related volatility. The report notes a 6 percentage point drop in net leverage, down to 61% last week—a sharp defensive pivot ahead of Trump’s planned reciprocal tariffs rollout on April 2.
Technical Outlook
The Nikkei 225 on the 15-minute chart shows a sharp drop from the high of 36104.15 down to a low of 35087.15, followed by a gradual recovery phase. After the dip, buyers stepped in with increasing momentum—evident from the MACD crossing into bullish territory and the histogram turning green. Price has since climbed back above 35700, though it’s currently struggling to gain clear direction, with movement consolidating sideways.
Picture: Nikkei recovers from 1000-point dip—buyers cautious, but still in the game, as seen on the VT Markets app
The moving averages (5, 10, 30) are starting to flatten, signaling neutral momentum. If price sustains above 35700, a retest of the 35840–35900 zone could be expected. However, downside pressure remains unless 36100 is reclaimed convincingly.
Fund Flows and Strategy Shifts
The sell-off was widespread, with multi-strategy and macro hedge funds leading the charge. Outflows focused heavily on South Korea, mainland China, and Taiwan, according to Morgan Stanley. Japan also saw increased short positions, with traders reacting defensively to Tokyo’s export sensitivity and the potential escalation in U.S.-Asia trade tensions.
In addition, hedge funds exited Chinese consumer stocks and unwound Taiwan tech exposure. This coincided with South Korea’s decision to lift its long-standing short-selling ban, further amplifying regional jitters.
Cautious Forecast
While Tuesday’s rebound shows resilience, gains remain fragile. A breach below 35,500 could reopen downside towards 35,000, especially if Trump’s tariffs on Wednesday escalate into broader trade conflict. On the upside, the index would need to break and hold above 35,800 to encourage more sustained buying.
Traders should expect high volatility through the week, with positioning light and liquidity thin ahead of the holiday period in several Asian markets. Tariff-sensitive sectors—autos, semiconductors, and exporters—remain most exposed.
