Hedge funds investing in emerging markets extended their Q1 surge into April, with performance led by emerging Asia, including India and China, according to the latest HFR Emerging Markets Hedge Fund Industry Report.
The HFRI EM: India Index climbed 5.63 per cent in April, extending the 2017 gain to 22.1 per cent and representing the strongest start to a year on record.
Total capital invested in emerging markets (EM) hedge funds reached an all-time high in 1Q, rising to USD205.8 billion, the third consecutive quarterly record. As previously reported by HFR, total hedge fund assets globally increased to USD3.07 trillion at the end of Q1, also representing the third consecutive quarterly record for total global industry capital.
All EM regions posted strong performance gains to begin 2017, with the HFRI Emerging Markets (Total) Index up 1.6 per cent in April and 7.8 per cent YTD; the index has climbed 13.8 per cent in the trailing 12 months, posting gains in 10 of these 12 months.
In addition to India, Chinese hedge funds produced strong performance to begin 2017, with the HFRI EM: China Index advancing 1.2 per cent in April and 10.3 per cent YTD, topping the Shanghai Composite Index by nearly 900 basis points YTD.
Due to investor net outflows of USD2 billion, the total capital in emerging Asia hedge funds remained at USD48.6 billion in Q1, roughly unchanged from the year end figure, while the number of funds investing in the region was also little changed at 516.
Hedge funds investing in the Middle East surged 3.1 per cent in April, bringing the YTD return of the HFRI EM: MENA Index to +5.6 per cent; the 2017 gain for the index reverses the FY 2016 decline of 3.8 per cent. Total capital invested in Middle East-focused hedge funds increased to USD4.7 billion, managed by approximately with nearly 50 regionally focused funds.
Hedge funds investing in Latin America and Russia both extended strong 2016 gains into early 2017, with the HFRI EM: Latin America Index climbing 9.9 per cent through April, following a jump of 27.2 per cent in 2016. Similarly, hedge funds investing in Russia/Eastern Europe have gained 3.1 per cent in 2017, building on a return of +27.0 per cent for the HFRI EM: Russia/Eastern Europe Index in 2016. Total capital invested in Russian/Eastern European- and Latin American-focused funds both increased slightly in 1Q, ending the quarter at USD29.6 billion and USD6.4 billion, respectively.
“Emerging markets hedge funds have led industry performance through geopolitical uncertainly which has defined early 2017, including falling commodity prices, expectations for higher interest rates, US Dollar strength, and increased risk of terrorism and military escalation,” says Kenneth J Heinz (pictured), president of HFR. “EM hedge funds have effectively adapted to these increased risks, as well as trade uncertainty associated with the Trump administration and European elections. Amid falling implied asset volatility and improved expectations for global growth and inflation in 2017, it is likely that EM hedge fund strategies will continue to lead industry performance through mid-year.”
