Emerging Markets hedge funds extended Q2 declines through August, with losses again driven by exposure to Russian assets as well as the acceleration of global inflation, rising US interest rates and slowing economic growth, according to lates data from HFRI.
Emerging Markets hedge funds extended Q2 declines through August, with losses again driven by exposure to Russian assets as well as the acceleration of global inflation, rising US interest rates and slowing economic growth, according to the latest data from HFRI.
Tracking unprecedented volatility concurrent with the ongoing military conflict in Ukraine, after falling more than -50 per cent through April, the HFRI EM: Russia/Eastern Europe Index surged +26.8 per cent over the following three months, paring the YTD decline to -37.4 per cent through mid-Q3. Russian assets had plunged in value as the stock exchange closed and the Rouble posted steep losses before regaining some of the losses as the Russian Stock Exchange partially reopened. In addition to these geopolitical risks, global inflationary pressures increased to generational highs and the US Federal Reserve aggressively raised interest rates.
After seven consecutive months of declines to start the year, the HFRI Emerging Markets (Total) Index posted its first monthly gain for 2022 in August, advancing +0.75 per cent and paring the YTD decline to -12.5 per cent, as reported today with the releases of the HFR Asian Hedge Fund Industry Report and the HFR Emerging Markets Hedge Fund Industry Report.
The investable HFRI 500 Fund Weighted Composite Index, which includes funds across all regions in both Emerging and Developed markets, has declined -2.5 percent YTD through August, with gains in uncorrelated Macro and fixed income-based Relative Value Arbitrage strategies offset by declines in higher beta Equity Hedge exposures. The HFRI 500 Macro Index surged +14.6 percent YTD through August, while the HFRI 500 Equity Hedge Index declined -11.4 percent. Total Emerging Markets hedge fund assets declined to $249.7 billion in 2Q22, down nearly $27 billion from the year end 2021 AUM record of $276.4 billion.
While Russian-focused hedge funds plunged to begin 2022, other Emerging Markets regions posted moderate declines driven by surging global inflation and the US Dollar. The HFRI EM: Latin America Index is essentially unchanged for the year, declining a modest -0.7 per cent YTD through August, while the HFRI EM: MENA Index has fallen -3.7 per cent, and the more volatile HFRI EM: China Index has plunged -19.6 percent. Total capital invested in Asian hedge funds fell to $130 billion in 2Q22, down from $138.8 billion to end 2021.
Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, and the Middle East (as well as Japan) have continued to navigate soaring volatility and steep declines, with the HFR Cryptocurrency Index plunging -45.1 per cent YTD through August; this despite surging +18.6 per cent in July 2022 and after the index vaulted +240.6 per cent in 2021.