Hedge funds focused on the Middle East and North Africa led emerging markets performance through August, with the HFRI MENA Index gaining 18.7% year-to-date as managers navigated heightened geopolitical tensions, volatile oil prices and a sharp rise in global interest rates.

The performance came as the outlook for an end to the Iran military conflict remained uncertain, contributing to extreme moves in energy markets and broader financial assets. The HFRI Emerging Markets (Total) Index advanced 8.2% over the first eight months of 2026, according to HFR data released alongside its latest Asian and Emerging Markets Hedge Fund Industry reports.

Japan was another strong-performing market, with the HFRI Japan Index gaining 8.8% year-to-date through August. HFR said managers across emerging markets and Asia had benefited from opportunities created by rising bond yields, geopolitical developments and heightened volatility in technology and artificial intelligence-related equities.

Performance elsewhere across emerging markets was more subdued. The HFRI EM: China Index rose 2.8% year-to-date, while the HFRI EM: Latin America Index gained 2.6%. The HFRI India Index was down 3.3% over the same period.

Across the broader hedge fund industry, the HFRI Fund Weighted Composite Index returned 7.85% through August. Its strongest-performing strategy area was the HFRI RV: Yield Alternatives Index, which climbed 17.9% during the period.

The gains came alongside continued growth in capital allocated to emerging and Asian hedge funds. Estimated assets under management in emerging markets hedge funds reached a record $287.6bn at the end of the second quarter, while Asian hedge fund AUM rose to an estimated $152.1bn, marking a third consecutive quarterly record.

“MENA hedge funds led Emerging Markets performance YTD through August while Japan also posted strong gains, with managers successfully navigating surging bond yields, escalation of the Iran military conflict and record Technology/AI equity volatility,” said Kenneth J Heinz, president of HFR.

Heinz said the combination of uncertainty and market volatility was continuing to create opportunities for hedge fund managers, adding that Asian and emerging markets strategies had remained tactical and flexible as market risks evolved.