One of the standout features of hedge fund performance in 2023 – at least until the end of November – was a scorching run by emerging market funds. The data will add to perceptions that hedge funds remain an important part of the wealth management chessboard.
Emerging markets hedge funds surged into late 2023 on falling
inflation, interest rates, and weakening dollar, according to
The HFRI EM: Latin America Index compiled by
Chicago-headquartered Hedge Fund
Research rose by 8 per cent in November, raising the
year-to-date return to 18.3 per cent, HFR reported late last
“Emerging markets hedge funds, especially funds focused on Latin
America and India have surged since mid-Q4, a sharp reversal of
the volatile risk-off trends which dominated the majority of the
year, to a powerful risk-on sentiment driven by surprise declines
in inflation and interest rates,” Kenneth J Heinz, president
of HFR, said.
Emerging markets have witnessed contrasting fortunes in recent
times; rises to US central bank interest rates after the pandemic
were headwinds for countries that had borrowed in US dollars and
a rising dollar exchange rate, but subsequent expectations of a
peak to US rates have helped EM markets.
Also, the fortunes of certain countries continue to benefit from
a change to global supply chains amid US-China tensions. India
has seen its stance as a supplier grow, for example. Improvements
in India markets meant that the HFRI EM: India Index of hedge
fund returns linked to the country rose by 7 per cent in
November, bringing the year-to-date gain to a sizzling 27.3 per
Rises in cryptocurrency prices during much of 2023 – confounding
some sceptics after the market rout of 2022 – also buoyed hedge
funds linked to these digital entities. Hedge funds with high
exposure to cryptocurrency across EM regions including Korea,
Russia, China, the Middle East, as well as Japan have surged thus
far in 2023, with the volatile HFR Cryptocurrency Index rising by
9.9 per cent in November. This brought its year-to-date return to
49 per cent, after plunging 54 per cent in 2022.
In other data, the HFRI Emerging Markets (Total) Index, which
covers all EM regions, advanced 4 per cent in November to
increase its year-to-date return to 6 per cent. The HFRI
Fund Weighted Composite Index®, which consists of funds investing
in both emerging and developed markets, gained 4.9 per cent
year-to-date through November, led by the HFRI Equity Hedge
(Total) Index, which jumped 6.7 per cent through the first 11
months of the year.
Despite the military conflict following the Russian invasion of
Ukraine continuing through its second year, hedge funds investing
in Eastern Europe and Russia surged in recent months through
unprecedented uncertainty and volatility, with the HFRI EM:
Russia/Eastern Europe Index vaulting by more than 24 per cent
from June through November. After declining -15.6 per cent in the
first five months of the year, the Index is now back into
positive territory, up an estimated 4.8 per cent year-to-date
through November, following a steep performance decline of 40.3
per cent in 2022.
Total Emerging Markets and Asian hedge fund assets were both
steady through the beginning of 4Q23, with emerging market assets
under management estimated at $245.8 billion, while total capital
invested in Asian hedge funds was also steady at $126.6 billion
to start the fourth quarter.
There were mixed results in other emerging markets.
The HFRI EM: MENA Index gained 3.9 per cent year-to-date through
November, while the volatile HFRI EM: China Index fell 3.9 per
cent year-to-date, after falling 19.3 per cent in 2022.