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Emerging markets hedge fund assets post steep decline in January

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Emerging markets hedge funds posted steep declines to begin 2016, as concerns about slowing growth and weakening currency in China, falling energy prices, and geopolitical risk precipitated a steep drop in risky assets globally.

The HFRI Emerging Markets Index fell -5.4 per cent in January, following a +2.2 per cent return in 4Q 2015.  The index declined –3.2 per cent for full year 2015, according the latest HFR Asian and Emerging Markets Industry Reports, released today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. Total Emerging Markets hedge fund capital declined by USD8.5 billion in January to USD182 billion, erasing the FY 2015 asset increase of USD7.5 billion.
Steep performance losses across all EM regions contributed to January’s sharp asset decline. The HFRI EM: China Index fell -10.0 per cent in January, which followed three consecutive months of gains and a 2015 return of +6.0 per cent. This volatile Index gained +23.0 per cent through May ’15 before falling -19.0 per cent from June through September. The Shanghai Composite Index fell over -22.6 per cent in January, following a FY gain of +9.4 per cent in 2015.
Total capital invested in Asian hedge funds also fell USD6.6 billion in January, after posting a narrow asset decline of USD700 million in FY 2015. Investors redeemed over USD800 million from Asian hedge funds in 4Q15, roughly the same amount withdrawn in 3Q. Other Asian hedge fund indices posted similar performance in January, as the HFRI EM: Asia ex-Japan Index fell -8.5 per cent, while the HFRI Japan Index declined -3.6 per cent.
Hedge funds investing in the Middle East region also experienced steep losses in January, with the HFRI MENA Index down -6.2 per cent for the month, following a decline of -6.7 per cent in 2015. Total investor capital invested in Middle East-focused hedge funds fell to USD3.8 billion in January.
Hedge funds investing in Russia and Latin America also posted losses in January, though these losses were modest, relative to other EM regions. The HFRI EM: Russia/Eastern Europe Index declined   -1.9 per cent for January, after gaining +5.5 per cent in 2015. Total capital invested in Russian-focused hedge funds fell to USD26.4 billion as of January-end. The HFRI EM: Latin America Index posted the smallest decline of the major EM regions, with the Index falling -1.8 per cent in January, following a decline of -20.9 per cent in 2015, the worst calendar year of performance since a -29.0 per cent drop in 2008. Total hedge fund capital invested in Latin America-focused hedge funds declined to USD5.4 billion through January, after falling by USD4.7 billion in 2015.
“Extreme dislocations across EM currency, commodity, fixed income and regional equity markets resulted in an acceleration of performance volatility and asset declines in both 4Q15 and early 2016,” says Kenneth J Heinz, President of HFR. “While geopolitical and economic uncertainty continue to dominate the near-term EM outlook, recent adverse developments have also contributed to a richening of the opportunity set for managers and investors with the risk tolerance to monetise and benefit from these developments.”

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