Hedge funds investing in Eastern Europe face worst results in eight years By Reuters

By Nell Mackenzie

(Reuters) – Hedge funds trading Eastern European stocks and bonds posted their worst performance in eight years, weakened by soaring global inflation, the strength of the U.S. dollar and the war in Ukraine, according to the BarclayHedge Eastern European index.

The index, which tracks the performance of hedge funds trading stocks and bonds in the region, fell 22.65% between the start of 2022 and the end of August, according to the index compiled by data provider BarclayHedge.

That puts him on track for his worst performance since 2014.

Another index from the same data provider, which tracks fund managers trading only Eastern European stocks, fell further, by almost 32% over the same period.

An MSCI EM Eastern Europe ex-Russia index that trades in euros is down just over 30% year-to-date, underperforming broader emerging market equities as well as benchmarks for global stocks. The MSCI International EM Price Index is down 22% and the MSCI All Country World Price Index is down 20%.

The dollar’s soaring to 20-year highs in the face of soaring inflation and aggressive rate hikes by the Federal Reserve has caused pain around the world. It attracts funds to US assets and drives up the cost of imports as local currencies weaken against the dollar.

“There is a difficult combination of factors in this part of the world right now,” said Ben Crawford, vice president of research at BarclayHedge. “The slightest threat that war may cross over into the other Baltic states makes investors nervous about gaining exposure to these markets.”

Since the outbreak of war in Ukraine, the number of funds tracked by BarclayHedge in the region has fallen to just 15 from 43 since the start of the year, the data provider said.

A portfolio manager of a fund managing more than $100 billion said share prices of Eastern European companies didn’t stand a chance against the rising dollar.

Stock prices fell across Europe on Wednesday after higher-than-expected US inflation this week hinted at another significant rate hike by the Federal Reserve.