Emerging market hedge funds saw strong returns in 2020, with China strategies performance surging to 26.3% last year, according to hedge fund industry database provider HFR.
Overall, emerging market strategies as measured by the HFRI Emerging Markets Index gained 12.7%, the China index returns dominated as did some other emerging market regions after large declines in the first quarter of 2020.
“Emerging markets hedge funds performance and capital surged into 2021 with gains driven by optimism regarding vaccinations globally and improving prospects for a conclusion of the coronavirus pandemic quarantine, while expectations for both economic growth and inflation continued to increase,” said Kenneth Heinz, president of Chicago-based HFR. “Once again, hedge funds across both EM and Japan have increased exposure to cryptocurrencies, contributing to record gains as cryptocurrencies surged to new records.”
Total capital invested in Asian hedge funds increased to $125.9 billion (Chinese RMB 0.8 trillion, Japanese Yen 13.4 trillion, Korean Won 140.9 trillion, Indian Rupee 9.2 trillion) to end 2020, while the HFRI Japan Index surged 5.9% in the fourth quarter, bringing the full year return to 11.5%. According to HFR, total emerging markets hedge fund assets increased to a record of $256.6 billion to end 2020 (Chinese Renminbi: 1.66 trillion, Brazilian Real: 1.4 trillion, Indian Rupee: 18.7 trillion, Russian Ruble: 19.2 trillion, Saudi Real: 962 billion), an increase of nearly $5.0 billion over the prior quarter.
Heinz added that as leading global institutions and investors are increasing their exposures to both emerging markets and cryptocurrency hedge funds, which were up by nearly 200% in 2020. Hedge funds across emerging market regions including Korea, Japan, Russia, China and the Middle East have become increasingly active in cryptocurrency trading. He expects a continuation of “powerful and favorable” emerging market and cryptocurrency trends in 2021.