Emerging markets hedge funds extended year-to-date (YTD) performance gains in the third quarter as local equity and currency markets posted a strong recovery on a continuation of the US Federal Reserve stimulus measures, according to the HFR Emerging Markets Hedge Fund Industry report, released by HFR.

The HFRI Emerging Markets (EM) Total Index gained +3% in 3Q13 and +2.5% in October, bringing YTD performance for the EM Index to +4.7%, outdistancing most individual EM local equity markets.

Total hedge fund capital invested in Emerging Markets increased to US$161 billion (Chinese RMB 980 B, Russian Ruble 5.29 trillion, Brazil Real 377 B, Indian Ruppe 10.3 trillion, Saudi Riyal 604 billion), the fifth consecutive quarterly record asset level for EM hedge fund capital.

EM performance gains in 3Q13 were led by funds investing in China, Korea, Russia and the Middle East, as equity markets recovered from losses experienced in the first half of 2013 (1H13).

The HFRX China Index gained +3.8% in 3Q, bringing YTD performance to +10.5%, leading the performance of Chinese equities by over 1600 basis points (bps). HFRX Korea Index posted a strong gain of +4.3% in 3Q, topping the YTD performance of Korean equities by over 250 bps. Hedge fund capital invested in Emerging Asia increased by US$1.8 billion in 3Q to US$42.3 billion.

The HFRX MENA Index climbed +3.9% in 3Q and leads EM hedge fund performance YTD with a gain of +14.7%; nearly 50 hedge funds investing primarily in the Middle East currently manage US$2.9 billion.

The HFRI EM: Russia/E. Europe Index has recovered from 1H13 losses, gaining +5% in 3Q and +2.4% in October, topping the YTD decline in Russian equities by 750 bps.

HFR estimates that over 170 EM hedge funds currently invest primarily in Russia with total capital in excess of US$25 billion. Hedge fund investing in Latin America have navigated the most challenging local EM environment in 2013, with the HFRI EM: Latin America Index gaining +2% in 3Q, paring the YTD decline to -2.6% and topping the YTD decline in the Bovespa by nearly 1500 bps.

Total EM hedge funds with dedicated focus on investing in LatAm increased to over 100 funds with over US$10.4 billion.

HFR is pleased to offer access to www.HedgeFundResearch.cn, HFR’s Chinese-language website, which includes general information on the Global and Asian hedge fund industry, over 100 HFR indices, including Asian & Emerging Markets regional indices, as well as global strategy indices, such as Equity Hedge, Event Driven (including Activist & Distressed), Macro (including CTA) and Relative Value Arbitrage Indices.

Kenneth J. Heinz, President of HFR, said: "Reversing significant declines in 1H13, EM equities posted a strong rebound in 3Q on continuation of US Federal Reserve stimulus measures (QE), extending gains of EM hedge funds which were well positioned for the equity and currency rebound, and driving total EM capital to a new record level. With the prospect of US stimulus (QE) extraction still salient and likely to occur in coming months, EM hedge funds are positioning for unpredictable volatility and dislocations across EM currency, commodity, equity and fixed income markets which may occur despite continuing economic recovery across both developed and emerging markets. The EM environment is likely to continue to be dominated by these powerful trends, creating new opportunities and exposing new risks as EM and developed markets transition from the stimulus support which has defined the past few years of financial market performance."