Hedge funds investing in emerging Asia, specifically in India and China, posted the strongest quarterly performance since Q2 2015, benefitting from improving investor expectations for global growth and favourable currency market trading in Q1 2017.
That’s according to the latest HFR Asian Hedge Fund Industry Report which reveals that the HFRX India Index surged 19.05 per cent in Q1, its strongest quarterly gain since 2Q09, and topping Indian equity performance, as measured by the BSE Sensex 30 Index, by 780 basis points, leading all HFR indices for the quarter.
Despite the strong performance, total capital invested in Asian-focused hedge funds increased only slightly due to an investor net outflow of USD3.2 billion, ending the quarter at USD110.43 billion (RMB762 billion, JPY12.4 trillion). As previously reported by HFR, total hedge fund capital invested globally increased to USD3.066 trillion in Q1 2017, the third consecutive quarterly capital record.
Chinese hedge funds also posted a strong start to 2017, with the HFRX China Index gaining 10.4 per cent in Q1 2017, the highest quarterly performance since Q2 2015. The index topped Chinese equity markets, as measured by the Shanghai Composite Index, by over 650 basis points and reverses the decline of 3.2 per cent for FY 2016. Similarly, the HFRI EM: Asia ex-Japan Index jumped 9.07 per cent in Q1 2017. Total capital invested in Emerging Asia-focused hedge funds was little changed from the prior quarter at USD48.6 billion. The HFRI Fund Weighted Composite Index, consisting of hedge funds globally, advanced 2.5 per cent in Q1 2017.
Hedge funds investing in Japan also produced gains in Q1 2017, as well as topped the performance of regional equity markets, with the HFRI Japan Index advancing 3.6 per cent in Q1. The gain for Japanese hedge funds topped the decline of the Nikkei 225 by 469 basis points for the quarter. Total capital invested in Japan-focused hedge funds increased to USD26.9 billion, while capital invested in hedge funds investing in pan-Asia fell slightly to USD35 billion.
By strategy, Asian-located Event-Driven (ED) and Equity Hedge (EH) funds posted the strongest gains in Q1, as both indices advanced 6.8 per cent in the quarter. Comparatively, the HFRI Event-Driven (Total) Index and HFRI Equity Hedge (Total) Index produced returns of +2.1 and +3.9 per cent, respectively, for Q1 2017. Asian-located Macro hedge funds posted a decline of 0.6 per cent in the quarter, trailing the minor 0.3 per cent gain for the HFRI Macro (Total) Index, while Asian-located Fixed Income-based Relative Value Arbitrage funds added 0.9 per cent, trailing the HFRI Relative Value (Total) Index gain of 0.2 per cent in Q1.
“India and China led the Asian hedge fund industry in the first quarter, topping global hedge fund industry performance, as well as regional equity markets. The gains are a welcome and stark contrast for investors after experiencing a weak start from these funds in 2016,” says Kenneth J Heinz (pictured), president of HFR. “Geopolitical and economic trends towards increased global economic growth and strength in the US economy are favourable to these strategies, albeit with the continued and ongoing risk of military conflict in the Asian region. It is likely that growth in Asian hedge fund capital increases in coming quarters as investors seek higher performance with increased risk tolerance through sophisticated, specialised Asian hedge fund strategies.”