Emerging markets hedge funds surged in January, extending Q4 gains driven by rising US rates and continuing generational inflation, according to the HFRI 500 Emerging Markets Index, which jumped +4.9% over the month with gains seen across equity hedge and cryptocurrency exposures.

HFR says EM hedge funds continued to navigate unprecedented uncertainty associated with the ongoing military conflict in Ukraine, with the HFRI EM: Russia/Eastern Europe Index falling -11.9% in December 2022, bringing the Full Year 2022 decline to -40.3%; the Index advanced +2.1% in January to begin 2023.

The investable HFRI 500 Fund Weighted Composite Index, which includes funds across all regions in both Emerging and Developed markets, posted a gain of +2.2% in January, led by the HFRI 500 Equity Hedge Index, which vaulted +3.7%, the second-strongest monthly gain since February 2021.

Total Emerging Markets hedge fund assets began the year at an estimated $244.1 billion, an increase from Q3 2022, but still off the AUM record of $276.4 billion at year-end 2021.

Regional Emerging Markets indices also posted gains to begin 2023, as the HFRI EM: Latin America Index surged +5.6% in January after posting a narrow gain of +0.35% for 2022, while the HFRI EM: MENA Index posted a narrow gain of +0.2% in January, following a decline of -4.2% in 2022. The volatile HFRI EM: China Index jumped +7.0% in January after falling -19.3% in 2022.

Total capital invested in Asian hedge funds fell to $125.3 billion to end 2022, down from $138.8 billion to end 2021.

Hedge funds with high exposure to cryptocurrency across EM regions including Korea, Russia, China, and the Middle East (as well as Japan) posted a strong recovery from the extreme volatility and historic dislocation as a result of the FTX exchange collapse, with the volatile HFR Cryptocurrency Index surging +22.4% in January following a -54.0% fall in 2022.