HONG KONG (Reuters) -Global hedge funds ramped up risk appetite and added exposure to Japanese equities ahead of the Nikkei's surge to an all-time high as tariff worries eased, while stepping up short positions in South Korea, a Morgan Stanley note showed.

Hedge funds boosted gross exposure to Japan "in relatively large size" last week, with long bets outpacing short positions, according to a Morgan Stanley prime brokerage team note sent to clients on Tuesday, following a July pullback in positions.

A fund manager survey by BofA showed that within Asia, Japan continues to be the most favoured market by a significant margin.

Japan's benchmark Nikkei rose above 43,000 for the first time on Wednesday, with the broader Topix index also hitting an all-time high.

Uncertainty over Japanese exports to the United States has eased after Tokyo reached a framework deal with Washington on tariffs in July, helping to push the market higher.

The U.S. government last week promised to amend a presidential executive order to remove overlapping tariffs on Japanese goods, Japan's trade negotiator said.

Morgan Stanley said hedge funds built positions across Japan's technology and industrial sectors.

Shares of Nintendo soared to a historic high this week on robust sales of the Switch 2, while tech firm SoftBank Group also raced to an all-time high on optimism around artificial intelligence.

In other Asian markets, hedge funds were buying Taiwan and Australia but increased bearish positions toward Korea last week, Morgan Stanley said.

Hedge funds' net allocations to South Korea at the beginning of August sat just under peak levels of the past decade, as investors significantly increased their long and short bets in the market since the country lifted short sale ban, Morgan Stanley said in a separate note.

Korea is the best performing Asian market this year, up more than 30%.

Flows into Chinese tech giants listed in Hong Kong, remained muted, as hedge funds awaited big tech earnings, Morgan Stanley added.