Funds exposed to commodities and energy also decline amid China effect
Global hedge funds focused on China had their worst month in four years in July as Chinese stocks dropped despite repeated attempts by authorities to prop them up, according to data from industry analysis firm HFR.
The HFRI Emerging Markets: China Index plunged 7.7 percent last month, its biggest drop since September 2011, HFR says in a press release. The losses spread to other emerging markets, with the firm’s Latin American index dropping 4.2 percent and its index for Russia and Eastern Europe declining 3.6 percent.
Funds that focus on areas related to China, such as commodities, also suffered, with the HFRI EH: Energy/Basic Materials Index falling 6.7 percent, its worst monthly decline since May 2012, according to HFR.
The Shanghai Composite Index plummeted 14.3 percent in July as investors lost confidence in the outlook for Chinese stocks after years of dramatic gains. Chinese authorities banned large shareholders from selling stakes, spent billions of dollars financing stock purchases, cracked down on short-selling and took a series of other measures to stem the decline.
However, hedge funds focused on macro strategies, which typically maintain diverse positions, offset the losses in China. The HFRI Fund Weighted Composite Index, the broadest measure of performance tracked by HFR, was virtually unchanged in July, at a gain of 0.01 percent. The index has gained 2.5 percent so far this year. The HFRI EH: Technology/Healthcare Index was the biggest gainer among sub-strategy indexes in July, rising 2.1 percent.
‘While the concentrated sectoral and regional weakness occurred in areas with highly specialized exposures, broader trends across major strategies continue to be favorable and the outlook for investors in the second half positive,’ says Kenneth Heinz, president of HFR. ‘Industry performance is likely to be led by the industry’s leading and most well-established hedge funds, capturing opportunistic gains as financial market volatility rises and falls through a challenging environment of post-QE normalization.’
