Emerging markets hedge funds saw accelerated gains through mid-second quarter of 2024, leading industry performance amidst rising geopolitical risks, according to data.
Hedge fund research firm HFR reported that these risks stemmed from military conflicts, volatile elections in Europe and the US, and policy changes expected in 2H24. According to the analysts, investors in emerging markets have navigated an evolving macroeconomic landscape, with divergent expectations for interest rate cuts in the US and Europe and uneven inflation impacts through mid-year.
Hedge funds gained in April despite equities’ decline, research shows
The HFRI Emerging Markets: Global Index reported a +6.8% YTD gain through May, driven by the HFRI EM: Asia ex-Japan Index, which rose +5.1%, and the HFRI EM: India Index, which advanced +4.3% YTD through May.
The HFRI Emerging Markets (Total) Index, encompassing all emerging market regions, saw a +4.2% YTD increase through May. Meanwhile, the HFRI Fund Weighted Composite Index, covering both emerging and developed markets, gained +5.2% YTD.
Other regional emerging markets indices showed mixed performance. The HFRI EM: Latin America Index posted a modest gain of +0.2% YTD through May, while the HFRI EM: MENA Index declined by -2.8% amid rising geopolitical tensions. The HFRI Asia w/Japan Index surged +3.2% in May, raising its YTD return to +6.2%.
Equity and multi-strategy hedge funds lead Q1 2024 recovery
Hedge funds with significant exposure to cryptocurrency across emerging market regions including Korea, Russia, China, the Middle East, as well as Japan, have surged recently, with the volatile HFR Cryptocurrency Index vaulting +34.9% YTD through May, after surging +67.7% in 2023.
Estimated emerging markets assets under management rose to approximately $250 billion, while total estimated capital in Asian hedge funds reached nearly $133 billion, the highest levels since 2Q 2022.
Kenneth J. Heinz, president of HFR, commented: “Geopolitical risk is at its highest in decades, presenting both risks and opportunities, leading global institutions and investors to increase allocations to specialised emerging markets and cryptocurrency hedge funds for capital preservation and market navigation.”
