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HFRX Japan Index posts narrow 2Q decline as Nikkei falls over 10 per cent

Hedge funds investing in Japan/developed Asian markets quickly shifted to defensive positioning in Q2 2012, protecting investor capital as Japanese equities plunged over 10 per cent in the period, according to the latest HFR Asian Hedge Fund Industry Report.

The HFRX Japan Index posted a narrow decline of 1.5 per cent in 2Q, a sharp reversal from 1Q gains of 5.2 per cent. 

Hedge funds investing in China experienced declines similar to that of Japan in 2Q, with the HFRX China Index falling 1.6 per cent, while the HFRX Asia with Japan Index declined 2.4 per cent. 

Hedge funds investing in other emerging Asian economies fell more sharply, as the HFRX India Index and HFRX Korea Index declined by 8.4 and 10.8 per cent, respectively, in 2Q12. These losses followed 1Q gains of 19.2 per cent for the HFRX India Index and 6.3 per cent for the HFRX Korea Index.

Investors allocated a modest USD88m in net new capital to Asian focused hedge funds in 2Q, with flows concentrated in Japan focused funds. Despite the inflow, total capital invested in the Asian hedge fund industry declined by USD3.3bn, bringing total capital dedicated to the region to USD83.3bn (JPY6.55trn, RMB542bn).

The number of Asian focused hedge funds increased to 1,117, with these representing nearly 15 per cent of total global hedge funds. In addition, HFR’s most recent data shows the rate of new hedge fund launches and liquidations specific to the Asian hedge fund industry continues to exhibit more favourable dynamics than the global hedge fund industry as a whole. 

The trend toward Asian focused funds operating their headquarters locally also continued, with China, Japan and Australia all experiencing an increase in the per cent of Asian hedge funds in these countries. 

“Asian hedge funds were subjected to tremendous volatility and a sharp reversal of 1Q gains in 2Q12, with Japanese and Chinese funds navigating these changes with tactical flexibility and positive contributions from quantitative macro, event driven and fixed-income based relative value arbitrage strategies,” says Kenneth J Heinz, president of HFR.

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