The Eurekahedge Asian Hedge Fund Index was up 6.06% year-to-date as of July 2019, despite several political uncertainties that plagued the region. The underlying equity market as represented by the MSCI AC Asia Pacific IMI gained 7.79% over the same period. Investors’ optimism towards the US-China trade talks combined with central bank rate cuts and the Chinese stimulus program boosted the region’s equity market resulting in strong Q1 performance of Asian hedge funds. However, the risk-sentiment had shifted entirely in May following the decision of the US administration to increase the tariff to the US$200 billion of Chinese imported goods. The move prompted the Chinese government to retaliate, which resulted in the escalation of their trade conflict. The Shenzhen and Shanghai Composite Index lost 6.40% and 5.84% in May, respectively.
Similarly, the other trade war between Japan and South Korea distressed the region. Japan restricted the exportation of the three key chemicals in producing semiconductors to South Korea due to allegations that the latter was exposing sensitive information to North Korea. Consequently, South Korea accused Japan of waging an economic war which plunged their relationship to its lowest depth since the Korean War. As a result, Japan mandated hedge funds gained 2.27% year-to-date as of July 2019, while Korea mandated hedge funds lost 0.66% over the same period, underperforming their broader Asian peers. Meanwhile, the controversial extradition bill ignited months of protest and social unrest in Hong Kong. The said bill was feared that it would undermine the independence of Hong Kong’s legal system and erode their freedom as a semi-autonomous territory. The Hang Seng Index plummeted 9.42% in May.
Figure 1: Industry growth since 1999
Figure 1 above provides the industry growth of Asian hedge funds since 2000. As of end-July 2019, the total assets managed by Asian hedge funds stood at US$186.5 billion, while the industry population stood at 1,487 hedge funds. The number of hedge funds in the region has mostly stagnated between 2014 and 2019, even though the industry assets grew noticeably in 2017. However, the industry’s total assets contracted by US$10.6 billion in 2018. From the figure above we can also observe that the 2008 financial crisis hit the Asian hedge fund industry particularly hard, and it wasn’t until 2018 that the industry managed to recover the lost assets and surpass the previous industry AUM peak by the end of 2007.
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