Emerging markets and Asian hedge funds have posted strong gains in early 2025, capitalising on heightened market volatility driven by tariff and trade uncertainty and sharp declines in tech equities and cryptocurrencies, according to the latest data released by HFR.
The HFRI Emerging Markets: China Index surged 6% year-to-date through February, while the HFRI EM: Asia ex-Japan Index climbed 2.8%.
The gains come as global financial markets grapple with sharp declines in technology stocks and cryptocurrencies, both of which have entered correction territory. Overall, the HFRI Emerging Markets (Total) Index, which tracks hedge funds across all emerging market regions, gained 2.3% YTD, outpacing the broader HFRI Fund Weighted Composite Index (FWC), which tracks funds across both developed and emerging markets and advanced 0.8% over the same period. The strongest performance within the FWC came from fixed income-based hedge funds, with the HFRI Relative Value (Total) Index rising 1.8%.
Regional emerging market hedge funds also posted gains, with the HFRI Japan Index up 1.0%, the HFRI EM: MENA Index advancing 2.2%, and the HFRI EM: Latin America Index rising 1.3%.
Hedge funds with exposure to cryptocurrencies, particularly those operating in Korea, Russia, China, and the Middle East, faced a sharp downturn as the HFR Cryptocurrency Index dropped 17.6% in the first two months of the year. This follows a 59.2% surge in 2024. Despite this volatility, HFR has expanded its cryptocurrency strategy classification system, introducing 11 sub-strategies to provide investors with more granular insights into crypto and blockchain-focused hedge funds.
Total emerging markets hedge fund assets declined slightly at the end of 2024, settling at an estimated $254.9 billion. Meanwhile, assets under management in Asian hedge funds remained stable at $131.2 billion.
Kenneth J Heinz, President of HFR, noted that hedge funds are navigating “powerful, accelerating and rapidly evolving volatility,” largely influenced by shifting U.S. trade and tariff policies. In addition to trade-related factors, Heinz highlighted policy changes around immigration, energy, and government budget reduction as key areas hedge funds are positioning for in 2025.
The crypto sector remains a critical focus, with hedge funds adapting strategies to align with the Trump administration’s efforts to expand cryptocurrency access. “As institutional interest in emerging markets and cryptocurrency hedge funds continues to grow, sophisticated investors are increasingly allocating capital to specialised strategies that provide exposure to these dynamic trends,” Heinz added.
