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Overall on the hedge fund side, the AUM has expanded by close to 30 billion in 2019 but that has come mostly on the back of strong performance, said Mohammad Hassan, Head Analyst – Hedge Funds, Eurekahedge, in an interview with ETNOW.

Edited excerpts:

How have been the flows to emerging markets over the last two weeks? Are there clear signs of a slowdown?

There are a lot of tensions right now in the market. But on the whole, sentiment has improved in the first part of 2019. Overall on the hedge fund side, the AUM has expanded by close to 30 billion in 2019 but that has come mostly on the back of strong performance and we are still tracking investor redemptions.

But the slightly positive news is that the pace of these investor redemptions has slowed down a lot. We have seen the investor redemption volume halve compared to what we saw in quarter four of 2018. So, it appears that we are slowing down and that investor nerves are calming but then we have got another bombshell on the market in terms of the US-China trade war intensifying again. It remains to be seen how this plays out for the rest of the year.

Given that the trade war negotiations seem to be fairly extended, does it look like we are going to have a clear resolution in sight? How much volatility are you really anticipating and how would you diverge those expectations between the equity and bond markets.

It is definitely adding to the overall risk premium that investors are demanding because we are seeing higher volatility levels across the board. Up until a couple of years back, central banks were generally raised their interest rates and tried to calm investor nerves that way. But now led by RBI, we are seeing a lot of central banks considering rate cuts because they fear that they need to meet their growth targets across the board.

In case of India as well, we have seen the RBI cut rates twice this year and they are also feeling a bit of pain because inflation is still coming on the strong side and with rising oil prices, there is more of a concern as to how they balance the competing needs between the interest or inflationary concerns versus trying to stimulate growth in the economy.

At our end, we would expect RBI to hold on but perhaps towards the year end, we might be poised for another rate cut. But there should be more clarity once the election cycle results are out towards the end of May.

How are hedge funds strategizing this time? We have seen the VIX surge. The global CBOE as well. What are the kind of positioning on the EM front? Are funds looking at increasing cash levels?

For the most part, funds are looking quite cautiously at what is happening in the market right now. There are two clear big challenges in the market. One, like I mentioned the US-ChiRead More – Source

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