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HFRI Russia Index jumps nearly 20% in three months

Thursday, May 28, 2015
Opalesque Industry Update - Volatile emerging markets hedge funds have returned to lead industry performance on the strong recovery of the Russian Rouble, higher oil prices, lowering of interest rates by the Chinese Central Bank, and a surge in trading volume on the Shanghai-Hong Kong Stock Connect program. As a result of these, hedge funds investing in Russia and China posted strong gains in recent months, with the HFRI EM: Russia/Eastern Europe gaining nearly 20 percent since the start of February, and the HFRI EM: China Index adding over 20 percent YTD 2015 through April.

Despite volatility to conclude 2014, total hedge fund capital invested in Emerging Markets hedge funds increased to nearly $190 billion in 1Q15 (1.18 trillion RMB, 10.9 trillion Russian Rouble, 11.9 trillion Indian Rupee, 613 billion Brazilian Real, 712 billion Saudi Riyal), with performance-based contributions concentrated in Russia and Equity Hedge strategies, according to the latest HFR Emerging Markets Hedge Fund Industry Report, released today by HFR®, the established global leader in the indexation, analysis and research of the global hedge fund industry. Total capital invested in the global hedge fund industry grew to a record $2.94 trillion to begin 2Q15.

The HFRI EM: Russia/Eastern Europe Index gained +19.2 percent in the three-month period of February through April, as oil gained nearly +15 percent, Russian equities recovered nearly +11 percent and the Rouble appreciated by over +36 percent against the U.S. dollar. Recent gains follow sharp losses for each of these in 2H14, with the HFRI EM: Russia/Eastern Europe Index experiencing an eight-month drawdown of -27.0 percent from July through January 2015. The Index declined -25.9 percent in 2014, the worst area of hedge fund performance last year and the third-worst year for the volatile Index, which fell -59.4 percent in 2008 and -63.9 percent in 1998. Despite this intense categorical volatility, the HFRI EM: Russia/Eastern Europe Index has produced an annualized gain of +12.7 percent since 1994, leading most areas of hedge fund and equity market performance. Total capital invested in Russian-focused hedge funds increased by 17 percent in 1Q15 to $25.2 billion (1.50 trillion Russian Rouble).

The HFRI China Index has gained +20.0 percent over the first four months of the year, including a record monthly gain of +14.2 percent in April, as trading volume on the Shanghai-Hong Kong Stock Connect program soared and the Chinese Central Bank reduced interest rates. Total capital of hedge funds investing in Emerging Asia increased to $52.5 billion (325.5 billion RMB). Capital invested in hedge funds that allocate assets across Multiple Emerging Market regions increased to $98.4 billion with the HFRI Emerging Markets (Total) Index advancing +7.4 percent YTD 2015 through April.

The HFRI EM: Latin America Index also posted a strong gain of +5.9 percent in April on higher oil prices and recovery of the Brazilian Real, though these gains were offset by declines in January and March, bringing YTD 2015 performance for the Index to a narrow decline of -0.3 percent. Total capital invested in Latin American hedge funds fell by five percent in 1Q15 to $9.7 billion (31.3 billion Brazilian Real). Similarly, the HFRI EM: MENA Index advanced +3.4 percent over March and April, offsetting early 2015 declines and resulting in a narrow gain of +0.6 percent YTD 2015. Total capital of hedge funds investing primarily in the Middle East increased to $4.1 billion (15.4 billion Saudi Riyal).

“Emerging Markets hedge fund capital enters 2Q15 benefitting from accelerating drivers of performance in China and Russia which underscore recent gains and indicate opportunities across regional EM currency, equity and commodity exposures,” stated Kenneth J. Heinz, President of HFR. “While risk and categorical volatility remain an inevitable component of EM investing, innovative hedge fund strategies have evolved to exploit market inefficiencies created by secular growth and economic volatility, representing a powerful mechanism for global investors to access these dynamic markets.”

www.hedgefundresearch.com

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