Emerging Markets Funds See Rare 2022 Gain: HFR

Emerging markets hedge funds produced a positive return in November, for only the second time in 2022, but remain well underwater on the year, according to indexation firm HFR.

The HFRI 500 Emerging Markets Index was up 3.94% in November, but still barely dented the year-to-date performance of -14.9%.

Also continuing to navigate unprecedented uncertainty associated with the ongoing military conflict in Ukraine, the HFRI EM: Russia/Eastern Europe Index rose 8% in October, paring the year-to-date decline to -34.2%.

Regional emerging markets regions also posted gains in November, as investors positioned for a moderation of rate increases and generational inflation, which have driven performance in 2022, while also positioning for increased risk of a global economic recession. The HFRI EM: Latin America Index has posted a narrow 2022 gain of 0.9% through November, while the HFRI EM: MENA Index is up 3.7% and -3.4% for the year. The volatile HFRI EM: China Index jumped 4.7% in November, but remains -25.6% on the year.

Total emerging markets hedge fund assets declined to $242.6 billion in Q3 2022, HFR says, down nearly $34 billion from the year end 2021 AUM record of $276.4 billion. Total capital invested in Asian hedge funds fell to $124.2 billion in 3Q22, down from $138.8 billion to end 2021.

“Extreme emerging market volatility accelerated in recent months, with positive impacts of early signs of moderating generation inflation, pace of rate increases and falling US dollar, partially offset by falling commodities and the dislocation in cryptocurrencies associated with the collapse of FTX,” says Kenneth Heinz, president of HFR. “Hedge funds focused on emerging markets and Asia have navigated these dynamic and fluid financial market cycles, defined by sharp reversals and unprecedent uncertainty.

“Fully expecting these powerful trends of macroeconomic and geopolitical uncertainty to persist into 2023, EM managers continue to position for the increased risk associated of a global recession, as well as the unpredictable impacts of additional cryptocurrency dislocations,” he continues. “Leading global institutions and investors seeking both capital preservation and opportunistic exposures to these trends are likely to increase exposures to specialised EM and cryptocurrency hedge funds into 2023 as mechanisms to access these powerful market dynamics.”