Hedge funds focused on the Middle East and Russia/Eastern Europe led Emerging Markets (EM) hedge fund performance through early 2018, as the US Dollar strengthened and the US Federal Reserve continued increasing interest rates.
The HFRI Emerging Markets (Total) Index posted a narrow gain of 0.08 per cent YTD through April, paring the gain of 4.0 per cent in January and following the gain of 19.4 per cent for all of 2017, as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry. The HFRI Fund Weighted Composite Index, which includes hedge funds globally of all strategies and regional investment focus areas, has gained 0.4 per cent YTD through April.
As of Q1 18, total EM hedge fund capital increased to USD233.4 billion (RMB: 1.491 trillion, Brazilian Real: 748 billion, Indian Rupee: 15.881 trillion, Russian Rouble: 14.296 trillion, Saudi Riyal: 875 billion), the seventh consecutive quarterly record AUM level. Global hedge fund capital also increased to a new record of USD3.22 trillion to end Q1 18.
Funds investing in Russia/Eastern Europe and the Middle East/MENA regions have extended early 2018 gains to lead EM hedge fund performance through April. The HFRI EM: MENA Index leads EM hedge fund performance with a +9.0 per cent return YTD; MENA-focused hedge funds manage approximately USD5.9 billion across nearly 50 funds. The HFRI EM: Russia/Eastern Europe Index remains up 1.3 per cent YTD, despite three consecutive monthly declines that have pared the 6.2 per cent return in January. Russian equity markets fell sharply in April, losing 7.6 per cent and bringing the YTD return to a narrow decline of -0.04 per cent. Total capital of hedge funds investing in Russia/ Eastern Europe increased to USD33.1 billion across more than 170 funds in Q1 2018.
The HFRI EM: China Index has also declined in three consecutive months after gaining 5.84 in January, resulting in a YTD return of -0.5 per cent through April, though the Index has outpaced the Shanghai Composite Index, which fell 2.73 per cent in April and -6.8 per cent YTD. The volatile HFRI EM: India Index surged 3.85 per cent in April, through it trailed the 6.65 per cent return of the Sensex 30. Total capital of hedge funds focused on Emerging Asia ended Q1 2018 at USD56.1 billion across approximately 520 funds.
The HFRI EM: Latin America Index lost 2.4 per cent in April, paring YTD performance to a modest decline of 0.06 per cent. Total capital invested in Latin America focused hedge funds remained steady at USD7.2 billion to end 1Q18, managed by more than 105 funds.
“Four powerful trends dominated Emerging Markets hedge fund performance in early 2018, with these including strong dollar/US interest rate adjustments, ongoing trade and tariff negotiations, rising oil prices, and expectations for moderating geopolitical tensions in the Middle East and Korean peninsula,” says Kenneth J Heinz (pictured), President of HFR. “Middle East hedge funds led performance in an absolute sense, though Chinese hedge funds displayed strong outperformance of regional Chinese equities, navigating the volatility associated with each of the aforementioned trends. Continuing the trend from the prior quarter, increasing US interest rates and inflation are likely to drive EM hedge funds outperformance and industry growth for investors seeking higher absolute performance with increased volatility protection.”