By Neil Mackenzie
(Reuters) – The Barclay Hedge Index for Eastern Europe showed that hedge funds that trade stocks and bonds in Eastern Europe are experiencing their worst performance in eight years, as surging global inflation, a strong U.S. dollar and the war in Ukraine have weakened them.
The index, which tracks the performance of hedge funds trading stocks and bonds in the region, showed a decline of 22.65% from the beginning of 2022 to the end of August, according to the index compiled by data provider BarclayHedge.
This puts it on track for its worst performance since 2014.
Another index by the same data provider, which follows fund managers who trade stocks only in Eastern Europe, is down almost 32% more over the same time period.
The euro-traded MSCI EM Eastern Europe Out of Russia is down just over 30% year-to-date, underperforming broader emerging market stocks as well as global equity indices. The MSCI International Emerging Markets Price Index fell by 22%, and the MSCI All World Countries Price Index fell by 20%.
The dollar’s rise to 20-year highs in the face of high inflation and sharp interest rate hikes from the Federal Reserve is causing pain around the world. It returns money to US assets and raises the cost of imports as local currencies weaken against the dollar.
“There is a challenging set of factors going on in this part of the world right now,” said Ben Crawford, vice president of research at BarclayHedge. “The smallest threat that the war may cross over to the other Baltic states is making investors nervous to face exposure to these markets.”
Since the outbreak of the war in Ukraine, the data provider said, the number of funds tracking BarclayHedge in the region has fallen to just 15 from 43 since the beginning of the year.
A portfolio manager with a fund that manages more than $100 billion said stock prices of companies in Eastern Europe do not stand up to the dollar’s appreciation.
Stock prices across Europe fell on Wednesday after higher-than-expected US inflation this week predicted another interest rate hike by the Federal Reserve.