Hedge funds fell for the fourth consecutive month in September down 0.58%1, though still outperforming underlying markets as represented by the MSCI AC World Index All Core2, which declined 3.60% during the month. Equity markets continued their slide this month as markets are still reeling from the Chinese equity market swing over the past months. Further to that, soft PMI data from China and the Fed’s vacillation over its long overdue rate hike added to the risk-off sentiment in the market while a commodity induced deflationary environment will continue to be a source of worry for emerging markets as central banks have little room to manoeuvre given the existing low interest rate environment.
The strength of the global economic recovery remains a concern for investors worldwide as data from economic powerhouses such as US and China remain meek. While the Chinese central bank is relatively accommodative, the US Fed is still deliberating the timing of its long-awaited interest rate hike. Leading up to the September FOMC meeting, the US dollar appreciated against most currencies with the USD Index up 0.44% in September. Among currencies, the Brazilian real weakened considerably against the dollar, down 8.29% as the Latin American region is heavily affected by declining commodity markets and slower demand from export destination countries.
In Asia, equity markets seem to show signs of bottoming out with the decline in Chinese equity markets becoming less steep than the previous months and while North Asian equity markets were mostly in negative territory across the board, the CSI 300 Index was down 4.86% during the month compared to the previous month (down 11.23%). Major Asian currencies also appreciated against the dollar in September with the Japanese yen up 0.97% and the Chinese yuan up 0.38% against the dollar respectively. Across strategy performance, Asia ex-Japan focused funds have posted gains in event driven, multi-strategy and long/short equity strategies compared to other regional peers. The Eurekahedge Greater China Hedge Fund Index has also posted positive gains during the month up 1.26%. Though too early to tell, events in the Asian region in the next few months could see some interesting developments.
Figure 1: August and September 2015 returns across regions
All regional mandates with the exception of Asia ex-Japan fell into negative territory this month as the confluence of several factors in the economy impacted investor sentiments such as monetary policy positions, falling oil and commodity prices, and weaker global economic growth. Leading the table, Asia ex-Japan mandated funds recovered from their previous month losses and was up 0.67% in September, while Latin American mandated funds suffered with losses of 1.55%. Latin America continues to be the casualty of economic uncertainty as export performance is reliant on demand from countries such as China.
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