Hedge funds rebounded from the prior two months’ losses, finishing the month up 1.40%1, underperforming underlying markets as the MSCI World Index2 gained 2.34%. Global equity markets extended their rally into November after the previous month’s v-shaped recovery, with investors piling back into risky assets as October’s fall was seen as a healthy correction after a lengthy period of rising prices. Investors remained in a buoyant mood about the markets, evidenced by the CBOE VIX Index falling 4.99% during the month, with strong gains in developed economies as well as emerging Asia. The Bank of Japan (BoJ) and the European Central Bank remains firm in their stance towards combating inflation, with the People’s Bank of China also lowering interest rates in November for the first time since 2012. Falling oil prices continued to make headlines during the month, with the OPEC’s decision not to cut oil production catalysing a further fall in energy prices and creating an uphill battle for European and Japanese policy makers trying to combat deflation. On the whole, as oil prices continue to fall and inflation expectations remain subdued, the much anticipated hike in global interest rates is likely to be pushed further down the road - much to the benefit of equities in the developed world.
Figure 1: October and November 2014 returns across regions
Japan managers were the best performers during the month, returning 2.30% as the benchmark Nikkei 225 index rallied 6.37% following the BOJ’s determination to keep inflation rising and the postponement of a planned increase in consumption tax. North American funds were also up 1.27% as strengthening fundamentals and falling unemployment within the US have supported equities higher, with US third quarter GDP recently undergoing an upwards revision, exceeding market expectations and bolstering confidence in the country’s recovery. The Eurekahedge Asia ex Japan Fund Index gained 1.26% during the month following the People Bank of China’s announcement of a cut in rates, which was interpreted positively as the beginning of another rate cut cycle in China. European funds managed to gain 0.91% in November even though economic outlook and inflation in the region remain weak despite monetary stimulus measures. Mangers investing with a Latin American mandate made a small gain of 0.24% in November, outperforming the MSCI Latin America Index3 which lost 0.53%.
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1 Based on 51.45% of funds which have reported November 2014 returns as at 12 December 2014
2MSCI AC World Index(Local)
3MSCI EM Latin America Index IMI (Local)