Research

2019 Key Trends in Asian Hedge Funds

Introduction

The Eurekahedge Asian Hedge Fund Index was up 4.15% year-to-date as of February 2019, trailing behind the underlying equity market represented by the MSCI AC Asia Pacific IMI which gained 8.56% over the same period. Asian hedge funds recovered from the losses incurred in 2018 as a result of the escalation of the international trade conflict between the world’s two largest economies, and the aggressive Fed rate hikes which triggered equity sell-offs in October and December 2018. In 2019, the Trump administration delayed the scheduled tariff increase to Chinese imported goods, reflecting the progress of the trade talks between the US and China. Meanwhile, the dovish tone of the Fed since the start of 2019 also helped Asian equity markets to recoup their losses as investors expect central banks to shift to a more patient stance. In addition, Chinese authorities signalled more stimulus as a response to the country’s economic slowdown as reflected in their GDP growth and Purchasing Manager Index data following the increase of the US tariffs to China’s exported goods, which negatively affected their trade sector. As a result, the two mainland stock exchange benchmarks, the Shanghai and Shenzhen Composite Indices gained 17.93% and 21.96% respectively over the first two months of the year. In comparison, the Eurekahedge Greater China Long Short Equities Hedge Funds Index was up 8.41% over the same period. The second Trump-Kim summit in Hanoi, Vietnam ended early as the two countries failed to reach an agreement, resulting in a sell-off in the Korean equity market, which wiped most of the gains the KOSPI Composite Index made since the start of the year. Meanwhile, the Eurekahedge India Hedge Fund Index was down 2.83%, as the escalation of the tension between India and Pakistan over the Kashmir Border posed as a headwind to Indian equities.

Figure 1: Industry growth since 1999
 

Figure 1 provides the industry growth of Asian hedge funds since 2000. As of the end of February 2019, the total assets managed by Asian hedge funds stood at US$187.3 billion, while the industry population stood at 1,474 hedge funds. The number of hedge funds in the region has mostly stagnated between 2014 and 2018, even though the industry assets grew noticeably in 2017. However, the industry’s total assets contracted by US$10.6 billion in 2018. From the figure above we can also observe that the 2008 financial crisis hit the Asian hedge fund industry particularly hard, and it wasn’t until 2018 that the industry managed to recover the lost assets and surpass the previous industry AUM peak by the end of 2007.

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