Global hedge fund investment in emerging markets slowed in the third quarter as the price of oil – a major export – declined and local currencies depreciated, according to industry analysis firm Hedge Fund Research (HFR).
Overall capital invested in emerging markets increased only $700 mn, or less than 0.3 percent, to $185 bn, slowing sharply from an increase of $9 bn in the second quarter and $5 bn in the first quarter, HFR says. Investment gains have slowed even faster on a year-to-year basis, with the overall increase in the first nine months of the year falling by almost half to $3.5 bn from $6.45 bn in the same period last year.
‘Emerging markets hedge funds have experienced intense pressure recently as a result of sharp local currency depreciations and falling oil prices,’ says Kenneth Heinz, president of HFR, in a press release. ‘Falling foreign currency reserves, higher import costs and lower oil revenue have increased the emerging markets risk paradigm into year-end, resulting in greater macroeconomic and geopolitical uncertainty.’
Capital invested in Russia and Eastern Europe crashed in the third quarter as Russian President Vladimir Putin and western leaders argued over intermittent fighting in eastern Ukraine. The HFRI EM: Russia/Eastern Europe Index, which HFR maintains to measure the region, declined 8.3 percent, posting the world’s largest drop, as the Russian currency reached a historic low of 46 rubles to the dollar.
The Latin America index dropped 5.4 percent in the quarter. Indexes for emerging Asia and the Middle East, however, posted gains in the quarter. The HFRI EM: India Index gained 4 percent while the China index increased 2.8 percent and the HFRI EM: MENA Index rose 3.9 percent.
Heinz says the losses in some emerging markets and the general slowdown has created ‘increased opportunity across emerging markets’ and predicts a recovery. ‘Emerging markets hedge funds typically experience a sharp performance recovery following periods of market stress, and investors that maintain or increase allocations in the current environment are likely to benefit from this recovery in the coming months and quarters,’ he adds.
