Hedge funds have a record level of investment in emerging markets in what is seen as a reflection of better global growth.
Capital invested in hedge funds reached $213.3 billion (€178.5 billion) at June 30, according to HFR, which compiles industry data.
HFR’s main emerging market index has seen four consecutive quarters of growth, but the most recent quarter marked the first net inflow of new money to emerging markets by hedge funds since the second quarter of 2015.
During the quarter ending June 30, the capital increase was $7.5 billion including market movement and the net inflow of $800 million.
Hedge funds investing in India and China led July performance: India increased 3.6% and China 3.5%.
Year-to-date (YTD), the HFRI Emerging Markets (Total) Index returned 12.6%. The same period saw hedge funds investing India return 25.5%, which HFR said topped the gain of Indian equities by over 300 basis points.
Other performance noted in the ‘HFR Emerging Markets Hedge Fund Industry Report’ included:
| July | YTD | |
| China | 3.5% | 19.3% |
| Middle East | 1.2% | 9.6% |
| Latin America | 10.7% | 27.2% |
| Russia/Eastern Europe | 2.3% | 1.6% |
“Inflows returned to EM [emerging markets] hedge funds after eight quarters of outflows as investor risk tolerance increased, driven by outstanding performance and regional equity market outperformance concentrated in Emerging Asia,” said Kenneth J. Heinz, president of HFR.
He added: “Ongoing regional equity and currency market adjustments, including the recent surge in the renminbi, to active and fluid negotiations of trade agreements are likely to contribute to increased opportunities for specialised EM hedge funds.”
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