Emerging Markets hedge funds extended gains through mid-3Q, leading industry-wide regional performance as managers positioned for an uncertain outlook including ongoing geopolitical risks from both ongoing and potential military conflicts, the impact of elections throughout Europe and the US, as well as a shifted interest rate cycle reflecting US & European central banks lowering interest rates and expectation for bank stimulus measures in China. The HFRI Emerging Markets: Global Index advanced +9.5 percent YTD through August, and the HFRI EM: India Index surged +15.1 percent over the first eight months of the year, as reported today with the releases of the HFR Asian Hedge Fund Industry Report and the HFR Emerging Markets Hedge Fund Industry Report from HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry.
The HFRI Emerging Markets (Total) Index, which covers all EM regions, advanced +5.7 percent YTD through August, while the HFRI Fund Weighted Composite Index®, which consists of funds investing in both Emerging and Developed markets, gained +6.8 percent YTD, led by the HFRI Equity Hedge (Total) Index, which has jumped +8.8 percent over the first eight months of the year.
Other regional Emerging Markets indices have posted more modest gains thus far in 2024, with the HFRI EM: Latin America Index advancing +0.6 percent YTD through August, the HFRI EM: China Index adding +1.1 percent, and the HFRI EM: MENA Index gaining +1.0 percent on rising geopolitical risks.
Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, the Middle East, pared YTD gains with declines in June and August, cutting the YTD return by two-thirds bringing the volatile HFR Cryptocurrency Index performance down to +11.6 percent YTD through August, this after having gained +36.3 percent YTD through May.
Total Emerging Markets hedge fund assets posted a modest quarterly increase in 2Q24 to end the quarter at $250.5 billion, the highest capital level since 1Q 2022. Total estimated capital invested in Asian hedge funds declined slightly over the quarter, from $132.4 billion in 1Q24 to an estimated $130.3 billion in 2Q.
“Emerging and developed markets crossed a significant milestone and inflection point in the multi-year, generational global interest rate and inflation cycle through mid-2024, with inflation falling and normalizing allowing global central banks to reduce interest rates while investors positioned for continued declines in both inflation and interest rates into year end. Despite this falling risk, geopolitical risks remained at historic levels, with tremendous and growing uncertainty regarding conflict in the Middle East, as well as the ongoing military conflict in Ukraine/Russia. As these risks have evolved, Emerging Markets hedge funds posted mixed gains through mid-2024, stronger in certain regions and more muted in others, as managers navigated shifting interest rates, inflation, and global geopolitical risks,” stated Kenneth J. Heinz, President of HFR. “In addition to these macroeconomic risks, the volatile unwind and recovery of the Japanese Yen carry trade, as well as ongoing structural cryptocurrency volatility have contributed to a unique opportunity set for managers positioned across emerging and developed markets. Fully expecting these risks and uncertainty to continue through year end, it is likely that leading global institutions and investors will increase allocations to specialized EM and cryptocurrency hedge funds which have unique approaches and expertise in these areas, providing important capital preservation while navigating this market paradigm.”
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