Goldman Sachs reports that hedge funds have initiated the largest net buying spree in global industrial stocks in five years. The single-week net inflow reached its highest since July 2020, marking the second-highest level since records began in 2016. This surge was primarily driven by increased long positions and short covering.
Excluding developed Asian markets, industrial stocks across other global regions experienced net buying. North American markets saw the most active buying, fueled by both long additions and short covering. In Europe, short covering was the dominant force. Factors such as valuation advantages, improved corporate earnings, and policy easing have boosted market sentiment.
Goldman Sachs notes that industrial stock allocations on its Prime platform are 5.8 percentage points higher than the MSCI Global Index (URTH, Financial), maintaining a high level for five consecutive years. The global long-to-short ratio in industrial stocks has reached 2.25, the highest since August 2022, placing it in the 58th percentile over the past five years.
European earnings expectations have significantly improved, with a projected 7.9% growth in 2025, compared to previous years. In North America, despite uncertainties like tariffs and geopolitical issues, the S&P 500 has reached new highs, driven by the AI boom boosting tech giants' stock prices.
Goldman Sachs recommends investors focus on ETFs in industrial and energy sectors, such as the iShares Global Industrials ETF (EXI). The firm advises targeting "Alpha" performance, exceeding market averages, by 2025.
