Chinese hedge funds posted three consecutive months of declines through April after surging 5.8 per cent in January and 31.1 per cent in 2017 as the Japanese Yen and Renminbi reversed early 2018 gains and the US Dollar strengthened, according to the latest HFR Asian Hedge Fund Industry Report.
In the first three months of 2018, the HFRI EM: China Index climbed 0.8 per cent, topping the 4.2 per cent decline of the Shanghai Composite Index by over 500 basis points (bps) in Q1 2018. However, the HFRI China Index declined 1.3 per cent in April, bringing the YTD return into negative territory to -0.5 per cent, though the index remains over 600 bps above the Shanghai Composite through April-end.
Total Asian hedge fund capital increased by USD0.81 billion to end Q1 2018 at USD123.0 billion AUM (JPY13.5 trillion, RMB: 780 billion and NIR8.3 trillion), the second highest level in history, topped only by the USD126.3 billion in 2Q15. The small net capital inflow of USD940 million was only the second quarterly capital inflow into Asian hedge funds since the record level of Q2 2015.
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 per cent for the month after losing -8.4 per cent in Q1 2018.
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 per cent in April, increasing the YTD return to +0.41 per cent. As reported previously by HFR, total capital invested in the hedge fund industry globally increased to a record USD3.2 trillion in Q1 2018.
The HFRI Japan Index also fell for the third consecutive month in April, as the index declined by 0.12 per cent for the month, which followed a 0.42 per cent loss in Q1 2018, resulting in a YTD return of -0.5 per cent.
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 per cent in April. The volatile Index has declined 20.8 per cent for 2018 after gaining 2,774 per cent 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 US Summit with North Korea in Singapore in June,” says Kenneth J Heinz (pictured), 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.”
