HFR: Emerging Asia Hedge Funds Surge In '17

May, 2017

Hedge funds investing in Emerging Asia, specifically in India and China, posted the strongest quarterly performance since 2Q15, benefitting from improving investor expectations for global growth and favorable currency market trading in 1Q17, 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.

The HFRX India Index surged +19.05 percent in 1Q, its strongest quarterly gain since 2Q09, and topping Indian equity performance, as measured by the BSE Sensex 30 Index, by 780 basis points, leading all HFR indices for the quarter.

Despite the strong performance, total capital invested in Asian-focused hedge funds increased only slightly due to an investor net outflow of $3.2 billion, ending the quarter at $110.43 billion (762 billion RMB, 12.4 trillion JPY). As previously reported by HFR, total hedge fund capital invested globally increased to $3.066 trillion in 1Q17, the third consecutive quarterly capital record.

Chinese hedge funds also posted a strong start to 2017, with the HFRX China Index gaining +10.4 percent in 1Q17, the highest quarterly performance since 2Q15. The Index topped Chinese equity markets, as measured by the Shanghai Composite Index, by over 650 basis points and reverses the decline of -3.2 percent for FY 2016. Similarly, the HFRI EM: Asia ex-Japan Index jumped +9.07 percent in 1Q17. Total capital invested in Emerging Asia-focused hedge funds was little changed from the prior quarter at $48.6 billion. The HFRI Fund Weighted Composite Index®, consisting of hedge funds globally, advanced +2.5 percent in 1Q17.

Hedge funds investing in Japan also produced gains in 1Q17, as well as topped the performance of regional equity markets, with the HFRI Japan Index advancing +3.6 percent in 1Q. The gain for Japanese hedge funds topped the decline of the Nikkei 225 by 469 basis points for the quarter. Total capital invested in Japan-focused hedge funds increased to $26.9 billion, while capital invested in hedge funds investing in pan-Asia fell slightly to $35 billion.

By strategy, Asian-located Event-Driven (ED) and Equity Hedge (EH) funds posted the strongest gains in 1Q, as both indices advanced +6.8 percent in the quarter. Comparatively, the HFRI Event-Driven (Total) Index and HFRI Equity Hedge (Total) Index produced returns of +2.1 and +3.9 percent, respectively, for 1Q17. Asian-located Macro hedge funds posted a decline of -0.6 percent in the quarter, trailing the minor +0.3 percent gain for the HFRI Macro (Total) Index, while Asian-located Fixed Income-based Relative Value Arbitrage funds added +0.9 percent, trailing the HFRI Relative Value (Total) Index gain of +2.2 percent in 1Q.

“India and China led the Asian hedge fund industry in the first quarter, topping global hedge fund industry performance, as well as regional equity markets. The gains are a welcome and stark contrast for investors after experiencing a weak start from these funds in 2016,” stated Kenneth J. Heinz, President of HFR. “Geopolitical and economic trends towards increased global economic growth and strength in the US economy are favorable to these strategies, albeit with the continued and ongoing risk of military conflict in the Asian region. It is likely that growth in Asian hedge fund capital increases in coming quarters as investors seek higher performance with increased risk tolerance through sophisticated, specialized Asian hedge fund strategies.”