Hedge funds were marginally negative in September, closing the month down 0.051, outperforming underlying markets as the MSCI World Index2 fell 1.86% on concerns over the pacing of rate hikes in the US. The protests in Hong Kong towards the end of the month also weighed in on investor sentiment, adding further selling pressure to equity markets which were already jittery at the prospect of rising rates. September saw a sharp rise in investor risk aversion, resulting in a corresponding flight to safe assets while the CBOE VIX Index rose to 16.31 during the month. The ECB surprised market participants by embarking on further easing; cutting interest rates another 0.10% and this divergence in economic policies drove the US dollar to a two year high against the euro. Over in Asia, government stimulus measures managed to support mainland Chinese equity markets higher but Hong Kong experienced steep losses as the ongoing demonstrations led to a sharp sell-off of local stocks. Another notable event in September was the Scottish independence referendum, which put pressure on the British pound but subsequently recovered after respondents voted against separation.
Figure 1: August and September 2014 returns across regions
Japanese managers were the best performers during the month, returning 0.91% and the only regional mandate in positive territory. Underlying equity markets saw a sharp rally in anticipation of Japan’s government pension investment fund (GPIF) increasing its allocation to the country’s equities and sharp depreciation of the yen, with the Nikkei 225 index gaining 4.86%. On the other hand, Latin American funds were down 2.02%, dragged down by losses in Latin America’s biggest economy; Brazil, which was hurt by speculation over elections results, weakening of the currency against the dollar and Moody’s downgrades.
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1 Based on 54.70% of funds which have reported September 2014 returns as at 15 October 2014
2 MMSCI AC World Index(Local)