China and Japan Hedge Funds Claw Back from Early Losses

Fresh investor capital continued to flow into hedge funds, with total capital increasing to $111.8 billion.

Asian hedge funds focused on investing in China posted sharp gains in Q3 2016, paring steep declines they posted early this year, as investor risk tolerance and market liquidity returned. The upbeat performance was driven by China’s Renminbi stabilization and stock market recovery, according to latest HFR Asian Hedge Fund Industry Report.

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The HFR quarterly report provides region-specific analysis that highlights the aggregate performance and characteristics of Asia-focused hedge fund strategies for global investors, asset managers and service providers.

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The company’s benchmark reference rate, the HFRI China Index, jumped +7.5 percent in three months through September 2016, while the HFRI Asia ex-Japan Index added +6.7 percent compared to Q3 2015.

Fresh investor capital continued to flow into the sector during the period, with total Asian hedge fund capital increasing to an estimated $111.8 billion across all strategy areas. However, the figure is still well below its peak of $119.8 billion which was registered earlier in 2014.

Hedge funds focused on Japan also enjoyed good returns in the reported quarter as investors started nibbling at Tokyo shares again after suffering losses earlier this year by betting on a weaker yen. However, the outlook for the yen remains as murky as ever ahead of Bank of Japan and U.S. Federal Reserve policy reviews. Some fund managers think Japanese stocks are looking attractive again after tumbling 13 percent from January.

Commenting on the findings, Kenneth J. Heinz, President of HFR, said: “Asian hedge funds have effectively navigated intense regional equity market and currency volatility in 2016, topping sharp YTD losses for the Shanghai Composite and the Nikkei 225. With the macroeconomic and political overhang of both the US election and Brexit now removed, and as global M&A continues to accelerate, we expect strong performance of specialized Asian hedge fund strategies to attract global and institutional investors while leading industry performance into 2017.”

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