Hedge funds sold Hong Kong and Japanese stocks last week, Goldman Sachs said in a note, just before the tech-heavy Hang Seng and Nikkei indices fell in the last two trading sessions on worries over over-inflated tech values.

Japan's blue-chip Nikkei share average dropped more than 1 percent on Monday as tech stocks tracked their Wall Street peers lower on lingering worries over stretched valuations and ahead of an expected Bank of Japan rate rise later this week.

China and Hong Kong stocks also slipped as a slew of lacklustre economic data and mounting default risks by property developer Vanke weighed on market sentiment.

Hedge funds appeared to have anticipated the moves, according to data from a Goldman Sachs note to clients dated December 12 and seen by Reuters on Monday.

Asia was by far the most net sold region last week, with both emerging and developed market stocks more sold than bought, the note said.

Hedge funds dumped long positions in Hong Kong and added short bets in Japan, said Goldman's note.

A long position expects an asset value to rise, whereas a short position wagers it will fall.

Selling focused on technology and consumer stocks just before Friday afternoon's selloff with investors leaving technology for other sectors amid concerns about an AI bubble.

The Philadelphia SE semiconductor index dropped more than 5 percent on Friday.

JAPAN RATE BETS

Some stocks in Japan benefited from the exodus from tech shares and hedge funds net bought industrial, financial and materials company equities, said Goldman Sachs.

Japanese banking shares climbed 2 percent on Friday ahead of an expected rate increase by the Bank of Japan on Friday. Such bets were reinforced on Monday by the central bank's quarterly Tankan survey, which showed sentiment among big manufacturers rose to a four-year high. Higher interest rates boost returns from lending and investing.

Elsewhere, hedge funds continued to sell Chinese equities, which had been net sold in four of the last five weeks and to a lesser extent stocks in India, said the bank.

The speculators focused on stock sectors such as industrials and materials.

REUTERS

Hedge funds ditched tech stocks in Japan and Hong Kong last week, says Goldman