Asia hedge fund losses grow in Q3, poised for worst year since 2008

HONG KONG, Oct 19 (Reuters) – Hedge funds focused on emerging Asia posted their biggest monthly losses in years in September and are facing their worst year since the 2008 financial crisis, data provider HFR said.

The company’s HFRI Asia ex-Japan index plunged 7.7% in September, its worst single-month performance since March 2020, HFR data showed on Oct. 17. Performance in the third quarter was down 10.4% compared to a 4% decline in the second quarter.

The prolonged losses came as Asian markets faced mounting headwinds from hawkish Federal Reserve rate hikes, uncertainties surrounding the Chinese Communist Party’s five-year congress and rising China-China tensions over Taiwan and technology.

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“It’s a very painful third quarter for (Asia) hedge fund manager performance. Managers are watching the 20th party congress to get some clarity on China-related investments,” said Benjamin Low, senior investment director at Cambridge Associates.

The week-long congress, which began on Sunday, is expected to detail China’s political goals and re-elect current leader Xi Jinping to a landmark third term.

The HFRI index plunged 22.8% in the first nine months, the biggest drop in performance since the 2008 financial crisis, when the index fell 26.4% over the same period, according to Reuters calculations based on HFR Data.

China managers led September’s losses, with the HFRI’s China Index falling 8.5% amid a sell-off in equity markets. Repeated lockdowns in many Chinese cities, risk aversion ahead of the party convention and geopolitical risks weighed on market sentiment.

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Hong Kong’s Hang Seng Index (.HSI) hit an 11-year low in September and fell 13.7% this month, the Shanghai Composite Index (.SSEC) fell 5.5%, while MSCI’s index China (.dMICN00000PUS) declined 9.7%.

Other emerging Asian equity markets, such as Taiwan and South Korea, which are sensitive to inflation, also fell more than 10% in September.

The equity long/short strategy was the worst performer, while market neutral and multi-strategy managers were the best performers in September and so far this year, BofA Securities said in a statement.

The scale of central bank policy action and frequent macro headlines have created profitable trading opportunities for macro hedge funds around the world, according to analysts.

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“We think macro funds will continue to do well over the next 6 to 12 months,” Low said.

The HFRI Asia ex-Japan Index tracks funds that have more than 50% of their investments in the Asia ex-Japan region. Japan-focused hedge funds fared relatively well, with the HFRI Asia Index, which includes Japan, down just 3.3% in September and down 3.9% this year.

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Reporting by Summer Zhen; Edited by Vidya Ranganathan and Jacqueline Wong

Our standards: The Thomson Reuters Trust Principles.

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