HFR: Emerging Markets Surge

May, 2017

Hedge funds investing in Emerging Markets extended their 1Q surge into April, with performance led by Emerging Asia, including India and China. The HFRI EM: India Index climbed +5.63 percent in April, extending the 2017 gain to +22.1 percent and representing the strongest start to a year on record.

Total capital invested in Emerging Markets (EM) hedge funds reached an all-time high in 1Q, rising to $205.8 billion (1.42 trillion RMB, 649 billion Brazilian Real, 13.3 trillion Indian Rupee, 11.8 trillion Russian Rouble, 772 billion Saudi Real), the third consecutive quarterly record, according to the latest HFR Emerging Markets Hedge Fund Industry Report, released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. As previously reported by HFR, total hedge fund assets globally increased to $3.07 trillion at the end of 1Q, also representing the third consecutive quarterly record for total global industry capital.

All EM regions posted strong performance gains to begin 2017, with the HFRI Emerging Markets (Total) Index up +1.6 percent in April and +7.8 percent YTD; the Index has climbed +13.8 percent in the trailing 12 months, posting gains in 10 of these 12 months. In addition to India, Chinese hedge funds produced strong performance to begin 2017, with the HFRI EM: China Index advancing +1.2 percent in April and +10.3 percent YTD, topping the Shanghai Composite Index by nearly 900 basis points YTD. Due to investor net outflows of $2 billion, the total capital in Emerging Asia hedge funds remained at $48.6 billion in 1Q, roughly unchanged from the year end figure, while the number of funds investing in the region was also little changed at 516.

Hedge funds investing in the Middle East surged +3.1 percent in April, bringing the YTD return of the HFRI EM: MENA Index to +5.6 percent; the 2017 gain for the Index reverses the FY 2016 decline of -3.8 percent.  Total capital invested in Middle East-focused hedge funds increased to $4.7 billion, managed by approximately with nearly 50 regionally focused funds.

Hedge funds investing in Latin America and Russia both extended strong 2016 gains into early 2017, with the HFRI EM: Latin America Index climbing +9.9 percent through April, following a jump of +27.2 percent in 2016. Similarly, hedge funds investing in Russia/Eastern Europe have gained +3.1 percent in 2017, building on a return of +27.0 percent for the HFRI EM: Russia/Eastern Europe Index in 2016.Total capital invested in Russian/Eastern European- and Latin American-focused funds both increased slightly in 1Q, ending the quarter at $29.6 billion and $6.4 billion, respectively.

 “Emerging Markets hedge funds have led industry performance through geopolitical uncertainly which has defined early 2017, including falling commodity prices, expectations for higher interest rates, US Dollar strength, and increased risk of terrorism and military escalation,” stated Kenneth J. Heinz, President of HFR. “EM hedge funds have effectively adapted to these increased risks, as well as trade uncertainty associated with the Trump administration and European elections. Amid falling implied asset volatility and improved expectations for global growth and inflation in 2017, it is likely that EM hedge fund strategies will continue to lead industry performance through mid-year.”