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Politics and policy drive year-end gains for Asian hedge funds

The Asian hedge fund industry posted strong gains to conclude 2012, led by hedge funds investing in China, India and Japan, as capital invested in the Asian hedge fund industry increased by 7.5 per cent for 2012, according to the latest HFR Asian Hedge Fund Industry Report.

Total hedge fund capital invested in the Asian hedge fund industry increased to USD88.25bn (JPY8.17trn, RMB555bn), the highest level since 2007, prior to the financial crisis.

Total capital increased by USD3.9bn in 4Q12 on a net new inflow of USD1.17bn concentrated in emerging Asia. Total capital invested in the hedge fund industry globally increased to a record level of USD2.25trn (JPY208trn; RMB14trn) as of year-end 2012.

The HFRX China Index posted a gain of 8.0 per cent for 4Q12 and 9.4 per cent for the full year, in line with the 4Q gain for the Shanghai Composite but outperforming Chinese equities for the full year as economic growth and inflationary pressure slowed into year end.  The volatile HFRX India Index gained 4.3 per cent for 4Q12 and 27.6 for 2012, topping the gain of the Mumbai Sensex 30 and leading all regional hedge fund indices for 2012.

Japanese elections and the ensuing economic policy stimulus resulted in strong year end gains for the Nikkei 225 and a sharp decline in the Japanese Yen, which traded at a 27-month low against the US dollar. The HFRX Japan Index gained 2.5 per cent in 4Q12 and 8.1 per cent for 2012, trailing the strong year end gain for Japanese equities. The HFRX Korea Index posted a narrow decline of 0.25 per cent in 4Q12, in line with the Kospi Index.

The total number of Asian hedge funds increased by 5.3 per cent in 2012 to nearly 1,150 with almost a third (31.7 per cent) of all Asian hedge funds are located in China, an increase from 28.6 per cent as of year-end 2011. The percentage of Asian hedge funds located in Japan and India also increased in the past year, while the percentage of funds located in Singapore and Australia, which represent the second and third largest share of Asian-domiciled fund locations, declined in 2012.

“The Asian hedge fund industry was well positioned for the series of important Asian macroeconomic developments which occurred in the 4Q, including moderating growth throughout emerging Asia, the Japanese elections and the dramatic impact of the BoJ stimulus plan and inflation target increase on Japanese currency and equity markets,” says Kenneth J Heinz, president of HFR. “Asian investors continue to exhibit preference for tactical exposure to powerful trends in Japanese currency and equity market trends with a bias toward continued weakening of the Japanese Yen. As this dynamic environment continues to evolve, Asian-focused equity hedge and trend-following, quantitative macro systematic CTA strategies are likely to capture and benefit from these powerful trends.”

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