Hedge funds invested in emerging markets have seen sharp declines this year, led by Russia and Latin America, but India stands out as a bright spot.
Industry data tracker HFR said declines in local currencies, such as in Brazil, Latin America's biggest economy, and falling oil prices have pressured performance.
Hedge funds invested in Russia dropped an average of 8.3 percent net of fees in the third quarter, bringing the year-to-date performance to negative 12 percent, according to data from HFR this week.
Total hedge fund capital invested in Russia fell to below USD 25 billion as of the end of the third quarter across approximately 170 hedge funds, given the Ukraine conflict, falling oil prices, steep declines in Russian equities and a record low for the Russian rouble.
"Falling foreign currency reserves, higher import costs and lower oil revenue have increased the EM risk paradigm into year end, resulting in greater macroeconomic and geopolitical uncertainty, but also increased opportunity across emerging markets," said Kenneth Heinz, president of HFR.
Hedge funds invested in Latin America dropped an average of 5.4 percent in the third quarter as the Brazilian real fell to a 10-year low against the US dollar. Third-quarter losses offset gains from the first half of the year, bringing year-to-date performance through October to a decline of 3.5 percent.
The biggest winners so far this year are hedge funds invested in India.
India-focused hedge funds gained 4 percent in the third quarter and have extended gains into the early fourth quarter, bringing year-to-date performance through October to 41.9 percent. India share prices have soared as investors place hope in new the country's new pro-business prime minister, Narendra Modi.
Hedge funds invested in China have also risen, gaining 2.8 percent in the third quarter and 1.7 percent in October, bringing year-to-date performance to 2.7 percent.
Total hedge fund capital invested in Emerging Asia increased to nearly $50 billion, an increase of $4 billion since year-end 2013, according to HFR.
Hedge funds invested in the Middle East and North Africa gained an average of 3.9 percent in the third quarter, but declined in the early fourth quarter, leaving it up 7.2 percent reduced year-to-date.
(Reporting by Jennifer Ablan; Editing by Leslie Adler)