Home Business NewsBusiness Hedge funds slip as Russia-Ukraine war triggered risk-off negative sentiment

Hedge funds slip as Russia-Ukraine war triggered risk-off negative sentiment

by LLB Reporter
15th Mar 22 10:07 am

The Eurekahedge Hedge Fund Index declined -0.07%1 in February 2022, outperforming the global equity market as represented by the MSCI ACWI (Local) which declined -2.44% over the same period.

Global equities tumbled as Russia’s invasion of Ukraine, the most dangerous international conflict since the 1962 Cuban missile crisis has led to increasing concerns about stagflation at a time when global central banks are tightening monetary policy in a bid to cool inflation.

In response to the invasion, the US and European countries imposed harsh economic sanctions on Russia, banning transactions with the Russian central bank and stopping it from deploying foreign reserves, essentially cutting Russia off from the global financial system.

The RTS stock index and the Russian rouble plummeted -34.72% and -26.36% in February respectively as investors assessed the potential financial and economic impact on Russia. To prevent further depreciation of the Russian rouble, the Russian central bank has hiked its policy rate to 20%.

Despite their best efforts, the Russian rouble has continued to depreciate in March, hitting a low of US$0.0072 on 7 March 2022, marking a 44.2% depreciation from the end of January 2022. Stocks in the United States similarly fell as the S&P 500 and DJIA tumbled -4.05% and -3.53% in February respectively, extending their 2022 year-to-date losses to -9.09% and -6.73% respectively. Over in Europe, returns were negative among equity benchmarks in the region with the DAX and the Euro Stoxx 50 down -6.53% and -6.36% respectively.

As Europe is highly reliant on Russian oil and gas supplies, European countries were disproportionately impacted by the sanctions imposed by Western nations on Russia which caused a spike in the price of commodities. The S&P Goldman Sachs Commodity Index surged 8.77% in February, while Brent crude and West Texas Intermediate Crude Oil were up 11.41% and 9.52% respectively. UK equities were the least impacted in Europe, with the FTSE100 down -0.08% as the index is 21% exposed to the energy and mining sectors.

Returns were mixed across geographic mandates in February, with the Japanese mandate taking the lead with a return of 0.56% while the European and Asia ex-Japan mandates trailed behind with returns of -1.33% and -1.33% respectively. Across strategies, the CTA/managed futures mandate performed the best with a return of 1.89% while the fixed income mandate trailed behind their peers with a return of -1.17%.

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