Asia Hedge Fund Losses Grow In Q3, Poised For Worst Year Since 2008

HONG KONG (Reuters) - HFR Financial Services said hedge funds targeting emerging Asia posted their biggest monthly losses in September and are heading for their worst year since the 2008 financial crisis.

The company's HFRI Asia ex-Japan index fell 7.7% in September, its worst monthly performance since March 2020, according to HFR data on Oct. 17. The third-quarter figure was 10.4% lower than the 4% decline in the second quarter. .

The prolonged losses came as Asian markets faced mounting headwinds from the Federal Reserve's rate hike, uncertainty over the five-year Chinese Communist Party Congress and heightened tensions.

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It was a very painful third quarter for (Asian) hedge fund managers. “Managers are following the 20th party conference to clarify China-related investments,” said Benjamin Lu, senior investment director at Cambridge Associates.

The week-long Congress, which begins on Sunday, is expected to set China's political goals and re-elect incumbent leader Xi Jinping for an unprecedented third term.

The HFRI fell 22.8% in the first nine months, the largest drop since the 2008 financial crisis, while the index fell 26.4% over the same period, according to Reuters calculations based on HFR data.

Chinese managers led losses in September as China's HFRI fell 8.5% amid a sell-off in equity markets. Repeated lockdowns in many Chinese cities, risk sentiment ahead of caucuses and geopolitical risks weighed on market sentiment.

Hong Kong's Hang Seng (.HSI) hit an 11-year low in September, down 13.7% on the month, with the Shanghai Composite (.SSEC) down 5.5% and MSCI China's (.dMICN000000PUS) down 9.7 %. %

Other inflation-sensitive Asian stock markets such as Taiwan and South Korea also fell more than 10% in September.

BofA Securities said in a statement that long/short stock strategies were the worst performers, while neutral and multi-strategy market managers were the best performers in September and so far this year.

Analysts say the scale of central bank policy changes and frequent headlines have created lucrative trading opportunities for macro hedge funds around the world.

"We think the overall funds will do well over the next six to 12 months," Lu said.

The HFRI Asia ex-Japan Index represents funds that focus more than 50% of their investments in the Asia and Japan region. Japan-focused hedge funds have done relatively well, with the HFRI Asia index, which includes Japan, down just 3.3% in September and 3.9% this year.

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Reporting from Summer Jane. Edited by Vidya Ranganathan and Jacqueline Wong

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