Chinese hedge funds posted strong gains in the third quarter of 2016 as the Shanghai Composite Index pared 2016 losses and the Renminbi stabilised after H1 2016 volatility.
The HFRI China Index surged 7.5 per cent in Q3 while the HFRI Asia ex-Japan Index climbed 6.7 per cent, according to the latest HFR Asian Hedge Fund Industry Report released by HFR.
Total capital invested in Asian hedge funds increased to USD111.8 billion (JPY11.906 trillion; RMB760 billion) in Q3 2016, recovering the decline from the prior quarter but remaining below the record of USD119.8 billion from 2014.
Total global hedge fund industry capital also increased to a record of USD2.971 trillion (JPY316.38 trillion; RMB20.2 trillion) to end the quarter.
Strong Asian hedge fund performance in Q3 topped gains of regional equity markets and reversed or pared declines from H1 2016. Both the HFRI China Index and the HFRI EM: Asia ex-Japan Index outperformed the Shanghai Composite Index by 400 and 500 basis points (bps), respectively, for the quarter; these gains increased the YTD performance differential to 1500 and 1900 bps.
Hedge funds focused on investing in Japan also produced positive returns in Q3 2016, as the Japanese Yen posted intra-quarter gains against the US Dollar, while the Nikkei 225 pared YTD losses. In a reversal from its H1 2016 performance, the HFRI Japan Index advanced 1.95 per cent in Q3, though trailed the quarterly Nikkei 225 gain of 5.6 per cent. In October, the HFRI Japan Index added 2.1 per cent, increasing its outperformance of the Nikkei 225 to over 550 bps YTD.
Asian-located event driven (ED) and relative value arbitrage (RVA) hedge funds have seen strong returns in 2016, leading the global composite index, as well as the overall ED and RVA strategy-specific indices. Asian-located ED hedge funds, which include distressed, merger arbitrage and shareholder activist strategies, have climbed 8.4 per cent YTD through October, leading the +6.8 per cent return of the HFRI Event-Driven (Total) Index.
Similarly, Asian-located, fixed income-based RVA funds have gained +8.2 per cent YTD, leading the +6.0 per cent return of the HFRI Relative Value (Total) Index.
The HFRI Fund Weighted Composite Index, which encompasses all hedge fund strategies globally, is up 3.6 per cent on the year.
“Asian hedge funds have effectively navigated intense regional equity market and currency volatility in 2016, topping sharp YTD losses for the Shanghai Composite and the Nikkei 225,” says Kenneth J Heinz, president of HFR. “With the macroeconomic and political overhang of both the US election and Brexit now removed, and as global M&A continues to accelerate, we expect strong performance of specialised Asian hedge fund strategies to attract global and institutional investors while leading industry performance into 2017.”
