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By Summer Zhen
HONG KONG (Reuters) -Global hedge funds continued to sell China equities for a fourth straight week as the renewed enthusiasm for Chinese tech stocks, ignited by low-cost artificial intelligence startup DeepSeek, began to fade, a Goldman Sachs note showed.
Funds added short bets, while cutting long positions in the week from February 28 to March 6, the note, dated March 7, and seen by Reuters on Monday, said.
Hedge funds have "reversed course" since mid-February, Goldman Sachs prime brokerage said.
The investment bank said China had recorded the biggest purchases by its hedge fund clients globally up to February 17, fuelled by the emergence of DeepSeek.
That year-to-date flow is roughly flat now, Goldman Sachs estimates.
DeepSeek upended Wall Street's Magnificent Seven-led AI trade in January, propelling investors to pile into Chinese tech firms and potential AI beneficiaries amid wider AI adoption in the world's second-largest economy.
Investors had also bet on a catch-up in discounted China shares.
The tech-led rally saw the Hang Seng index jump 13% in February, the best performing among global major markets last month. The broader MSCI China index rose 12% in February and has gained another 6% this month.
"We maintain a positive stance on China equities, but note profit taking may occur following a 30% rally from the mid-January low," Timothy Moe, chief Asia Pacific strategist at Goldman Sachs, said in a separate note.
The investment bank added hedge funds sold every region in the week to March 6, led by North America and Asia emerging markets.
Analysts said the deceleration in China trade growth and worsening deflationary pressures reflected in the latest data could also weigh on short-term momentum and influence investor sentiment on China assets.
Overall, hedge fund positions on China remain relatively light. Goldman Sachs estimates hedge funds' net allocation to Chinese equities, both onshore and offshore combined, is about 8.2%, ranking in the 37th percentile over the past five years.
(Reporting by Summer Zhen; Editing by Rachna Uppal)
