Asian hedge funds wilt under August heat

Asian hedge funds had narrow losses of just under -1% in August amid market uncertainty, according to data providers, with regional performance roughly in line with global figures. 

Asia ex-Japan strategies were down on average -0.13% in August, according to Eurkeahedge, compared to a -0.05% loss in the benchmark MSCI Pacific ex-Japan index.  In the first eight months of the year, regional managers have returned 3.1%.

Japanese hedge funds – the strongest-performing region this year – also struggled to make gains, rising on average only 0.11% last month, but besting the Topix’s -2.27% loss. Despite the miniscule gain, they are up 18.8% for the first eight months of 2013, according to Eurekahedge.

Greater China managers also made small gains of 1.38% last month and 8.9% in the year-to-date, according to Eurekahedge.

On a global basis, managers lost -0.32% last month, while the MSCI World Index fell -2.26% in August. Hedge funds had scaled down their risk in response to weaker growth in emerging markets and in anticipation of a tapering of monetary easing by the US Federal Reserve.

The worst-performing strategies on a global basis were managed futures and long/short equity, while relative value and specialist credit managers had flat to slightly positive returns, according to fund of hedge fund manager FRM.

Emerging markets are highly vulnerable to reduced stimulus by the US Fed, particularly those with an overdependence on foreign capital flows, says FRM. It cites India, Indonesia, Brazil and Turkey as being among the most acutely affected countries.

In the coming months however, weaker emerging market equities and currencies will attract hedge funds, given their lower valuations, predicts Hedge Fund Research. In turn, more market participation will provide liquidity and growth across EM countries.

This would help to boost performance among emerging markets-focused funds, which gained 0.01% in August and are up only 0.82% year-to-date, according to Eurekahedge.

Meanwhile in Japan, news at the weekend that the 2020 Summer Olympics will be held in Tokyo had an immediate knock-on effect of boosting construction and real estate stocks early this week, both of which had relatively low trading volumes in August.

Positive public sentiment in Japan surrounding the Games, coupled with an expectation of domestic monetary easing under Abenomics, has already helped to boost market trading volumes, a Japanese hedge fund manager tells AsianInvestor. He expects domestic managers to achieve bigger gains in the near term as a result.