HFR: Asian HFs gain despite North Korean tension

August, 2017

Asian hedge funds extended 1Q gains through mid-year, led by funds investing in India and China, resulting in the first quarterly asset inflows since 2Q15 and increasing Asian hedge fund capital to the highest level since 4Q15.

The HFRX India Index gained +6.4 percent in 2Q17, bringing YTD performance to +26.6 percent, topping the Sensex 30 Index by over 1000 basis points for 1H17.  Total capital invested in Asian hedge funds rose to $117.1 billion (787 billion RMB, ¥ 12.95 trillion JPY, 7.45 trillion Indian Rupee), a quarterly increase of $6.7 billion, according to the latest HFR Asian Hedge Fund Industry Report, released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. New net capital inflows totaled $1 billion.

Chinese hedge funds also extended gains despite growing global geopolitical tensions on the Korean peninsula, with the HFRX China Index climbing +5.2 percent in 2Q17 and +16.2 percent for 1H17. This topped the muted gain of Chinese equities in 1H17 by more than 1300 basis points. Total capital invested in China-focused hedge funds increased to $52.5 billion through mid-year, a YTD increase of $3.9 billion. Similarly, the HFRI EM: Asia ex-Japan Index gained +15.0 percent in 1H17, which, alongside contributions from funds investing in Middle East, Russia/Eastern Europe and Latin America, drove HFRI Emerging Markets (Total) Index performance to +9.6 percent in 1H17.

Hedge funds focused on Japan were also up through 1H17 as the Japanese Yen climbed against the US Dollar, with the HFRI Japan Index advancing +3.0 percent in 2Q17, bringing 1H17 gain to +6.8 percent. This topped the performance of the Nikkei 225 by approximately 200 basis points. Total capital managed by hedge funds focused on Japan rose to $28.6 billion through mid-year.

Asian-located hedge funds investing in Equity Hedge (EH) and Event-Driven (ED) strategies led performance through mid-year, with Asian-located EH funds returning +12.2 percent in 1H17, while Asian-located ED funds gained +10.5 percent. The HFRI Equity Hedge (Total) Index was up +5.9 percent in 1H17, while the HFRI Event-Driven (Total) Index climbed +4.1 percent.

“For the second consecutive quarter, Asian hedge fund performance was led by exposures to India and China, as allocations outpaced redemptions to Asian-focused funds for the first time in eight quarters”, stated Kenneth J. Heinz, President of HFR. “As investor concerns over the geopolitical tension in North Korea rises and the attention towards currency trade policies increases, funds that strategically position for these events are likely to lead Asian hedge fund industry performance in the second half of 2017.”