Hans Schlaikier, Hedgeweek

Asia on the whole higher whilst Nikkei declines… Asian hedge funds averse to securities lending…

Thu, 04/07/2013 - 17:34

Asian equities were mostly higher yesterday (Thursday, July 4th) with the exception of Japanbut trading was cautious ahead of the European Central Bank meeting and Friday's key US jobs report. Australia's S&P ASX 200 rallied 1 per cent, Seoul's Kospi index closed at a session high and the Shanghai Composite rose to a one-week high. Japan's Nikkei index however, extended slight declines in choppy trade.

US economic data was mixed earlier in the week, providing traders with little direction ahead of the non-farm payrolls report. The ADP employment report showed a gain of 188,000 private-sector jobs, while service sector growth hit a three-year low. Meanwhile in Europe a political crisis in Portugal meanwhile revived fears about the euro zone debt crisis after the yield on the benchmark 10-year note soared above 8 per cent overnight.

A stronger currency capped gains on Japan's benchmark index as the dollar continued to trade below the 100 yen level, but moved off a session low of 99.6. Exporters came under some pressure as optimistic comments from Bank of Japan Governor, Haruhiko Kuroda were unable to push Japan's benchmark index into positive territory.

China's benchmark index reversed earlier losses to hits its highest level in over a week after the official China Securities Journal reported that the economy's growth model remained stable, but said that government debt threatened the recovery. Still, the index is well below its 200-day simple moving average of 2,183.

Exporter shares in Seoul erased earlier losses to lead the benchmark index higher, led by technology stocks. Market heavyweight Samsung Electronics rallied over 1 per cent ahead of posting second-quarter earnings guidance on Friday.

Asian hedge funds’ attitudes to securities lending remain divided, with enthusiasm generated by recent impressive performance numbers being tempered by concerns over cost, regulation, risk management and availability.

Hedge Fund Research paints a positive picture of hedge fund performance in Asia for the first four months of the year, with Asia ex-Japan funds (8.1 per cent), Chinese funds (8.8 per cent) and Korean funds (10 per cent) all outperforming the global average by at least 2:1 between January and April.
 

Eurekahedge data is even more encouraging. The firm’s Japan Hedge Fund Index was up 6.63 per cent in April, bringing its year-to-date return to 18.55 per cent and extending its winning run to the eighth month, which represents the longest winning streak on record for Japanese funds.
 

However, the difficulty of determining the extent to which securities lending is driving this growth is underlined by a JPMorgan prime brokerage global hedge fund trends report published in mid- May. Positive indicators from this report include increased demand for securities lending among Singapore-based funds where volumes rose in April “after several months of lighter activity” and Hong Kong investors’ appetite for shorts among Chinese financials. 

The report refers to a plateau in the Nikkei in April encouraging a number of funds to “increase short positions opportunistically”, but it also observes that flows remained tight in Korea and Taiwanese hedge funds are “avoiding onshore [securities] given that they will be recalled again later this year”. 


UCITS compliant Hedge funds posted declines, with the HFRU Hedge Fund Composite Index declining -2.33 per cent in June.
HFRU Relative Value Arbitrage Index declined -1.57 per cent in June, with declines in Emerging Markets, Real Estate and Fixed Income strategies, only partially offset by gains in Asset-Backed strategies, tactical sovereign debt exposure and Volatility strategies.

HFRU Event Driven Index posted a decline of -1.70 per cent in June, with declines in Merger Arbitrage, Emerging Markets debt, Asian and European Special Situations strategies.

HFRU Macro Index posted a decline of -2.52 per cent in June, with declines in Systematic, Metals, Risk Parity and Emerging Markets strategies, which were partially offset by Commodity, Active Trading and Volatility strategies.

HFRU Equity Hedge Index declined -2.76 per cent in June, with losses in Emerging Markets concentrated in Brazil, Turkey, China and India, partially offset by hedged European and Japanese equity exposure.


HFR's June performance notes included: Global financial market volatility persisted throughout June as investors positioned for a reduction of stimulus efforts and bond purchases by the US Federal Reserve. US Treasury bonds posted sharp declines as yields rose sharply for the 2nd consecutive month, with 10 year bond yields topping 2.5 per cent, an increase of over 80 basis point in 2 months. Government bonds yields also rose across UK, France, Germany, Italy, Spain and Switzerland; high yield credit also posted declines, with yields rising approximately 200 basis points for the month of June.


Gold and other Metals posted steep declines on expectations for reduced stimulus by the US Federal Reserve; Gold & Silver declined over -12 per cent for the month. Global equities posted declines led by European, Asian and Emerging Markets exposures; China, Italy and Brazil posted the steepest declines, while Hong Kong, France, UK, Germany, Spain, Argentina, Turkey and the Netherlands all posted significant declines.


US equities posted more moderate declines, with the S&P 500 falling -1.5 per cent, with declines in Commodity sensitive and Technology partially offset by gains in Energy. Following May's sharp gains, the US dollar was mixed against global currencies, posting narrow declines against the Euro, Japanese Yen & British Pound Sterling while gaining against commodity currencies including Australian Dollar, Brazil Real and New Zealand Dollar.


Citadel LLC, the USD15 billion hedge- fund firm founded by Kenneth Griffin cut six Hong Kong-based people from its team focused on Asian equities, about a year- and-a-half after expanding the group.
Fund managers Raymond Shu and Agus Tandiono are among those who left the company, said Katie Spring, a spokeswoman for Chicago-based Citadel. She declined to comment further.

Citadel is returning to its past practice of overseeing Asian equity investments from Europe and the US, which a review found to be more efficient, said a person with knowledge of the matter who asked not to be identified because the information is private. The firm will retain its Hong Kong office, home to a team that seeks to profit from macroeconomic themes and a securities business, said the person. Citadel will continue to invest in stocks in the region.


Global hedge-fund managers periodically have trimmed or closed operations in Asia to refocus on larger markets and cut costs. Citadel has made at least three rounds of job cuts in the region since late 2008. In December 2008, Citadel closed its Tokyo office and scaled back other Asian operations, eliminating 37 jobs, or more than half it had in the region. It dismissed four members of its Asian merchant-banking division in 2010. Citadel won a license from Hong Kong’s Securities and Futures Commission to manage assets as early as October 2005.


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