HONG KONG (Reuters) -Hedge funds tracked by Morgan Stanley globally posted growing losses as markets tumbled last week after U.S. President Donald Trump's announcement of sweeping tariffs, turning year-to-date performance to a 3% decline and driving down their net leverage.

Trump launched a historic trade war on Wednesday, and China retaliated with 34% reciprocal tariffs on U.S. imports on Friday, stoking fears of a global recession and sparking the worst two trading days for stocks since the pandemic in 2020.

The S&P 500 and FTSE plunged over 10% and 6% respectively after Trump's announcement. Commodities also tumbled broadly, with oil prices hitting their lowest in four years as of Monday.

Hedge funds had already accelerated their unwinding of positions and sought safety ahead of the tariff announcement, and export-driven Asian markets were at the forefront of the sell-off.

Morgan Stanley estimates U.S. long-short funds net leverage quickly fell to 37%, "just shy of historical lows," by the end of Friday, from over 50% at the beginning of the year.

A separate note by JPMorgan also said net leverage of hedge funds dropped to around the lowest since late 2023.

Net leverage measures the difference between a fund's long and short positions against the value of what it owns including borrowings. The lower the net leverage, the more conservative a hedge fund's position is.

Investors expect significant volatility on risk assets in the near term given the tariff uncertainties and suggest a continued risk-off stance.

"This global selloff has so far been too orderly, so probably more to go," said Eddie Tam, chief investment officer of Central Asset Investments, a Hong Kong-based hedge fund.

Hong Kong's Hang Seng Index had its heaviest slide on Monday since 1997.