Asian Hedge Funds Decline as USD Gains vs YEN, Renminbi

16 May, 2018

Chinese hedge funds posted three consecutive months of declines through April after surging +5.8 percent in January and +31.1 percent in 2017 as the Japanese Yen and Renminbi reversed early 2018 gains and the US Dollar strengthened, as reported today by HFR, the established global leader in the indexation, analysis and research of the global hedge fund industry, in the latest releases of the HFR Asian Hedge Fund Industry Report.

In the first three months of 2018, the HFRI EM: China Index climbed +0.8 percent, topping the -4.2 percent decline of the Shanghai Composite Index by over 500 basis points (bps) in 1Q18. However, the HFRI China Index declined -1.3 percent in April, bringing the YTD return into negative territory to -0.5 percent, though the index remains over 600 bps above the Shanghai Composite through April-end.

Total Asian hedge fund capital increased by $0.81 billion to end 1Q18 at $123.0 billion AUM (JPY: ¥ 13.5 trillion, RMB: 780 billion and Indian Rupee: 8.3 trillion), the second highest level in history, topped only by the $126.3 billion in 2Q15. The small net capital inflow of $940 million was only the second quarterly capital inflow into Asian hedge funds since the record level of 2Q15.

Indian-focused hedge funds led Asian returns in April 2018, with the gain in direct contrast to the declines of the HFRI China and Japan indices. The HFRI Emerging Markets: India Index surged +3.9 percent for the month after losing -8.4 percent in 1Q18.

The broad-based HFRI Fund Weighted Composite Index (FWC), which includes hedge funds globally of all strategies and regional investment focus areas, advanced +0.44 percent in April, increasing the YTD return to +0.41 percent. As reported previously by HFR, total capital invested in the hedge fund industry globally increased to a record $3.2 trillion in 1Q18.

The HFRI Japan Index also fell for the third consecutive month in April, as the index declined by -0.12 percent for the month, which followed a -0.42 percent loss in 1Q18, resulting in a YTD return of -0.5 percent.

In addition to Asian equities and currencies, Asian hedge funds have also recently begun to establish exposure to cryptocurrency and blockchain investments. As reported previously, the HFR Blockchain Composite Index surged +46.0 percent in April. The volatile Index has declined -20.8 percent for 2018 after gaining +2,774 percent in 2017.

“Asian hedge funds continue to navigate a fluid financial market performance environment, with currencies responding to trade and tariff developments, blockchain and cryptocurrency market volatility, and the potential geopolitical implications of the upcoming U.S. Summit with North Korea in Singapore in June,” stated Kenneth J. Heinz, President of HFR. “Given the magnitude of each of these, conditions are likely to remain fluid, benefitting funds tactically positioned for this evolving environment. It is likely that strong Asian regional equity and currency markets will drive Asian hedge fund performance gains through mid-year on the back of these historic developments.”