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Emerging markets hedge fund assets extend record as expectations for global growth rise

Friday, February 26, 2021
Opalesque Industry Update - Emerging Markets (EM) hedge funds, led by funds investing in China, surged in 4Q to extend FY 2020 gains as EM hedge fund capital reached a new record, driven by gains in EM regional equity markets and surging cryptocurrencies.

The HFRI Emerging Markets (Total) Index gained +12.7 percent for 2020, led by the HFRI Emerging Markets: China Index, which surged +26.3 percent, as both indices positioned for the strong continuation of gains into 2021 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.

Total Emerging Markets hedge fund assets increased to a record of $256.6 billion to end 2020 (Chinese Renminbi: 1.66 trillion, Brazilian Real: 1.4 trillion, Indian Rupee: 18.7 trillion, Russian Ruble: 19.2 trillion, Saudi Real: 962 billion), an increase of nearly $5.0 billion over the prior quarter.

While EM hedge fund performance was led by the HFRI Emerging Markets: China Index for FY 2020, several other EM regions posted strong performance as well, recovering from large 1Q20 declines. The HFRI EM: MENA Index gained +6.1 percent in 4Q20, recovering from the significant 1Q losses to end the year with a +2.5 percent return, and topping the narrow decline of Middle East equities. Hedge funds across EM regions including Korea, Russia, China and the Middle East (as well as Japan) have become increasingly active in cryptocurrency trading, with the HFR Cryptocurrency Index surging nearly +200.0 percent in 2020 as many currencies reached record levels.

The HFRI EM: Russia/Eastern Europe Index also surged +13.5 percent in 4Q bringing the FY 2020 return to +6.2 percent, which tops the steep decline of Russian equities by over 1650 basis points. The HFRI EM: Latin America Index spiked +13.0 percent in 4Q, which pared the YTD decline to -9.2 percent; the Index topped the 2020 decline of the Bovespa by over 1100 basis points.

The investable HFRI 500 Fund Weighted Composite Index gained +9.6 percent in 4Q20, bringing the FY 2020 gain to +10.5 percent.

Total capital invested in Asian hedge funds increased to $125.9 billion (Chinese RMB 0.8 trillion, Japanese Yen 13.4 trillion, Korean Won 140.9 trillion, Indian Rupee 9.2 trillion) to end 2020, while the HFRI Japan Index surged +5.9 percent in 4Q, bringing the FY return to +11.5 percent.

"Emerging Markets hedge funds performance and capital surged into 2021 with gains driven by optimism regarding vaccinations globally and improving prospects for a conclusion of the coronavirus pandemic quarantine, while expectations for both economic growth and inflation continued to increase. Once again, hedge funds across both EM and Japan have increased exposure to cryptocurrencies, contributing to record gains as cryptocurrencies surged to new records," stated Kenneth J. Heinz, President of HFR. "Leading global institutions and investors continue to increase exposures to EM and Cryptocurrency hedge funds, positioning for continuation of powerful and favorable EM and cryptocurrency trends throughout 2021."

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