The rapid growth of hedge funds in emerging Asia was underscored by their increased activity in the highly volatile and opportunistic credit markets of China and India, according to a study released by the financial services industry consultancy Oliver Wyman. Nearly 80% of the largest Asia-focused hedge funds are investing in China and India’s credit markets, reflecting the growing importance of the Asia Pacific region to the $2.5 trillion hedge fund industry worldwide.
The study, revealed that trading in certain products is limited by low liquidity, but that fund managers expect a steady maturation of the credit market throughout the region. The investment preferences of 60 of the largest Asia-focused hedge funds were examined for the study. The study shows that, in addition to trading a range of credit products, Asia-focused hedge funds are investing heavily in special situations and private placement deals, indicating growing confidence in the financial prospects of an array of the region’s emerging corporations.
75% of the hedge funds studied consider special situation deals in Asia ‘important’ to their business. Of those, about half consider special situations ‘very important.’ 79% of the hedge funds studied are active in privately-placed high-yield debt deals in Asia. Acknowledging limited liquidity for these investments, funds prefer to limit tenure to between two and five years.
Aa per the study, Indonesia, with its wealth of natural resources, is among the most important countries for hedge funds seeking special situations and private placements.The study stated, corporate bonds are the most actively traded product (86% of funds). 77% of funds are active in trading credit default swaps, 46% are trading convertible bonds and 32% are trading bank loans.
