Hedge funds reopen pre-war playbook as Iran war risks recede

• Shorter-maturity US Treasuries and Asian currencies gain appeal
• Southeast Asian stocks and instant-noodle firms may benefit
• Crude drop and US-Iran deal ease inflation, boost global markets

An eclectic mix of shorter-maturity Treasuries, beaten-up Asian currencies and even instant-noodle stocks look set to be among the early beneficiaries of the US-Iran agreement, according to global hedge fund managers.

As fast-money investors dust off their pre-war playbooks, Florida-based Grey Value Management sees value in shorter-dated US government bonds as does Reed Capital Partners in Singapore, which is also buying the yen. Vantage Point Asset Management says beaten-down Southeast Asian stocks may outperform.

Thomas Hayes, chairman of hedge fund Great Hill Capital in New York, is looking for a chance to buy US consumer stocks as confidence recovers.

“With inflation expectations subsiding on the back of the deal, the play is to go ‘back to the future’ with what worked in January or February — before the war,” said Hayes, whose firm oversees more than $1 billion.

The peace deal between the US and Iran, which will be signed on Friday, removes a major overhang for global markets after months of fighting triggered the biggest disruption to oil supply in history and stoked inflation concerns around the globe. Crude dropped on Monday, fueling a rally in stocks and bonds, while the dollar fell as demand for the world’s ultimate haven subsided.

Treasuries rose across the curve on Monday as a decline in crude prices prompted traders to pare back expectations of Federal Reserve interest-rate hikes.

For Chauwei Yak, chief executive officer at GAO Capital Pte in Singapore, the winners are likely to include companies in Asia.

Asian stocks have been hard hit by the US-Iran war given that the region’s major economies are oil importers. Equity benchmarks in India and Indonesia are among the world’s worst performers this year, while the two nations’ currencies have fallen to record lows.

“We can re-evaluate some companies that would have been impacted by oil prices if the war dragged on into the summer, for example instant noodles with their dependence on palm oil,” Yak said.

While the MSCI Asia Pacific Index of equities has risen more than 7% since the war began, technology has been the only sector posting gains, as the other 10 industry groups have declined.

“Themes that are structurally supported” include beneficiaries of AI buildout and renewable energy, said Ecaterina Bigos of BNP Paribas Asset Management, which oversees more than 1.6 trillion euros ($1.86 trillion) in assets globally. Bigos is a chief investment officer who advises on long-short strategies for Asia ex-Japan core investments at the firm.

Nick Ferres from Vantage is among those who see opportunities in Southeast Asian equities that have sold off heavily amid the Iran conflict.

“There is perhaps an opportunity in ‘unloved’ markets that have underperformed — Southeast Asia — although investors are likely to remain focused on the dominant theme, AI and AI enablers,” said Ferres, who is chief investment officer.

Cryptocurrencies rose, with Bitcoin climbing to a near two-week high after recently plunging to its lowest level since Donald Trump’s 2024 election victory. However, crypto traders remained cautious as they awaited clearer signs that the conflict had truly ended. Even after the rebound, Bitcoin was still down about 48% from its record high reached last October.

“We spent a part of our cash holdings into crypto, mainly crypto-AI projects, over the weekend,” said Richard Galvin, executive chairman at crypto investment firm DACM. “But we remain somewhat cautious as Iran and US haven’t signed the final peace deal yet.”

Macro Bets 

Meanwhile, hedge funds say the outlook and bets for currency and bond markets are more nuanced.

Matthew Haupt of Wilson Asset Management, which oversees more than A$6 billion ($4.3 billion), is among those buying global bonds.

“Long rates make a lot of sense,” said the hedge fund manager in Sydney. “Central banks can now be less hawkish.”

Over in Palm Beach Gardens, Steven Grey says he is “cautiously optimistic” about the latest developments and that shorter-maturity US notes appear better valued.

Treasury two-year yields fell six basis points to 4.02% on Monday, while those on benchmark 10-year notes dropped five basis points to 4.43%.

“With the 10-year note offering only about 40 basis points more than the two-year, we see no reason to reach further out in the calendar — or further down in credit quality — for yield,” said the chief investment officer at Grey Value Management.

The dollar, on the other hand, is losing its appeal among some hedge funds as demand for the reserve currency wanes along with the easing of geopolitical risks.

Bloomberg’s dollar gauge retreated as much as 0.3% on Monday, with riskier emerging-market currencies among the biggest winners against the greenback. The yen, which has been punished in part because of Japan’s heavy reliance on imported energy, has regained some fans.

“We are buying the yen, positioning for both a potentially overvalued dollar and also structurally positive outlook on Japan’s currency,” said Gerald Gan, chief investment officer at Reed Capital, which oversees $600 million.