Emerging Markets Capital Up Almost $5 Billion In Q2 – HFR

Amisha Mehta

22 August 2016

Emerging market hedge fund assets jumped to $189.8 billion in the second quarter of 2016, up by $4.7 billion from the prior quarter, as the momentous Brexit vote, stimulus measures and currency volatility shook financial markets worldwide, according to new data from Hedge Fund Research.

Total capital invested in hedge funds globally rose to $2.898 trillion through mid-year. Through July, the HFRI Fund Weighted Composite Index, a global, asset-weighted index comprised of over 2,000 single-manager funds, gained 3 per cent year-to-date, while the HFRI Emerging Markets Composite Index increased 5.2 per cent.

The Latin America index was the standout performer, surging 8.9 per cent in the second quarter and a further 4.3 per cent in July. This brought year-to-date growth to 24.4 per cent for 2016 - the strongest seven-month performance period for the index since it gained 30.4 per cent over the seven months to October 2009. Hedge fund capital invested in Latin America increased to $5.9 billion while the estimated number of funds was unchanged at 107, according to HFR.

Funds investing in Russia also enjoyed strong performance. The HFRI EM: Russia/Eastern Europe Index rose 5.4 per cent in the second quarter and 14.7 per cent in the year to July. Hedge fund capital invested in Russia and Eastern Europe increased to $26.6 billion, up by more than $1.1 billion from the first quarter. This was managed by over 170 funds.

Hedge funds investing in emerging Asia rebounded after early year losses, with the HFRI EM: Asia ex-Japan Index increasing by 3.3 per cent in July, bringing year-to-date growth to 1 per cent. Capital invested in emerging Asian hedge funds increased to $48.5 billion, managed by over 520 funds.

“Emerging markets capital increased through mid-2016, driven by strong performance in Latin America and Russia, as energy and commodity markets recovered, currency volatility spiked, and regional EM equity markets posted solid gains,” said Kenneth Heinz, president of HFR.

“EM hedge funds have successfully navigated gains in the US dollar, Japanese yen, and Swiss franc, as well as Brexit-related declines in the British pound sterling. With developed market rates remaining suppressed by stimulus measures through mid-year, specialised hedged EM exposures represent a compelling opportunity for global investors, benefitting from either continued low rate environment or increasing global inflation.”