Asian hedge funds hit hard in 2Q12

There was no safe haven for the hedge fund market as both developed and emerging markets revealed growing weaknesses.

"2Q had been difficult for the hedge funds in Asia. The big swing in the market was largely due to Europe and is relatively less owing to domestic factors. In the midst of risk-off environment, Asian currencies also weakened versus US dollar, particularly India Rupee, which dropped 8% in the 2nd Quarter.," said OYSTER Multi-Manager in a release.

"China also showed signs of weakness with the latest PMI number continued pointing more downside and there still haven’t seen the sign of stabilization / bottoming of PMI. The weak PMI and weak economy also cast doubt on the effectiveness of the stimulus policy since China government changed their stance from monetary tightening to loosening after Chinese New Year.," it said.

"Unlike late 2008 / early 2009 Chinese unleashed a massive stimulus package, this time the stimulus package is more moderate and conservative. It is perhaps a lesson learnt by the Chinese official in 2008/2009, of which a too-strong / too rapid credit growth eventually did more harm than good by creating high inflation and housing bubble. Recent loan growth number shows only a mild acceleration. New credit creation generally takes 1-2 quarters to have a noticeable impact to the economy. Chinese economy / Chinese companies’ earnings are in the bottoming process, yet the exact timing is difficult to tell," it added.

Still, there are some remaining bright spots, including Asia credit and emerging Asia equity.

"The correction in May was brutal for equities investor in Asia but Asia credit had been holding up relative well especially Asia High Yield. In May, Asia High Yield index dropped only marginally which significantly outperformed Asia equities and Asia currencies," it said.

"For equity strategy, we continue to prefer emerging Asia as we believe credit creation from these countries continue to be strong as the sovereign debt, corporate debt and private debt of these countries are still at relatively low and healthy level comparing with developed countries. Together with their favourable demographics, we do believe the high GDP growth and strong corporate earnings growth can sustain. Asia currencies, post sell-off in May, also look interesting as fundamentally speaking, Asian currencies should be in a long secular bull trend," it added.