Hedge fund data provider HFR reports that hedge funds investing in Japan declined to conclude the first half of 2016 as the Japanese Yen surged on Brexit, while hedge funds investing in China and throughout Emerging Asia posted mixed performance for the second quarter.
The HFRI Japan Index fell -2.7 per cent in June, the largest monthly decline since February, as the Nikkei 225 lost -9.6 per cent for the month, bringing the Nikkei’s 1H16 decline to -18.2 per cent. The June loss brings performance of the HFRI Japan Index to -2.6 per cent for 2Q and -6.1 per cent for 2016 as the Japanese Yen rose to 101 against the US Dollar and below 133 against the British Pound Sterling after investor risk appetite fell sharply on the Brexit vote result.
Total capital invested in Asian hedge funds decreased to USD109.7 billion (11.089 trillion JPY, 728.41 billion RMB) which, while representing only a small decline of USD2.1 billion over the prior quarter and a decline of over USD9.2 billion from year end 2015, brings total Asian hedge fund capital to the lowest level since 3Q13.
Capital outflows increased slightly over the prior quarter to USD2.5 billion, though this represents the largest quarterly outflows since 2Q09. Globally, total hedge fund capital increased to USD2.898 trillion as of June 30, an increase of USD42.06 billion during the quarter, as the HFRI Fund Weighted Composite Index gained +2.0 per cent in 2Q.
Hedge funds that invested in China and Emerging Asia effectively navigated the Brexit volatility, benefiting from short exposures to currencies and commodities, and included quantitative CTAs and Event Driven exposures such as Distressed and Shareholder Activists. The HFRI EM: Asia ex-Japan Index gained +0.8 per cent for June and +1.4 per cent for 2Q16, while the HFRI China Index posted a narrow gain of +0.06 per cent for June. The Shanghai Composite Index fell -2.5 per cent in 2Q and has declined -17.2 percent for 1H16 after steep 1Q losses.
HFR reports that the number of Asian hedge funds was essentially unchanged over the prior quarter and year-end 2015 at 1,170. Asian hedge fund capital by sub-region was also little changed for Asia ex-Japan at USD48.5 billion, while capital invested in pan-Asian hedge and Japan funds fell to USD36.4 billion and USD24.9 billion, respectively.
“Brexit and the acceleration of the Japanese Yen contributed to declines across Japanese-focused hedge funds, though these funds significantly outperformed the Nikkei, which suffered steep losses in 1H16”, says Kenneth J. Heinz, President of HFR. “Recent stimulus measures of the Japanese government have resulted in sharp increases in JGB yields contributing to a normalization of the rate environment, though yields remain negative and thus, highly abnormal. Continuation of this normalisation process or a reversal of this trend toward increasingly negative yields and stronger Japanese Yen are likely to result in increased realized Asian asset price volatility and an enhanced opportunity set for specialized Asian hedge fund strategies in 2H16.”