Japan quake hits recent hedge fund gains

The industry-high returns and inflows to Japan hedge funds last month could reverse in March, as data shows February’s gains came from sectors hardest hit by the country’s present disasters.

Figures from Eurekahedge showed Japan-focused managers made 2.6% in February, below the Nikkei 225’s 3.8% but more than double the 1.1% from all hedge funds, 0.55% from European-focused managers and 1.2% from Russian / Eastern European portfolios.

Japan funds also performed best in January, Eurekahedge said, and were up almost 4% in the first two months of 2011.

This might change, as Eurekahedge said February’s healthy gains came from managers “investing in financial and insurance stocks, as well as material and mining companies”.

Insurance companies face uncertain bills to rebuild infrastructure demolished by the earthquake then tidal wave on Friday, notwithstanding the government’s role in the earthquake insurance market. Banks are also expected to be hit hard.

The Nikkei 225 fell 2.1% by late trading on Thursday 17 March, but it is up from a low on the Tuesday before that was caused in part by hedge funds.

Trading volume on Wednesday 16 March was the second highest recorded, after Tuesday’s 5.8bn shares. It occurred despite the Bank of Japan offering to inject into the banking system ¥5tn, on top of ¥28tn already offered.

Before all this, Japan hedge funds took the highest proportional inflows last month, increasing $15.4bn of assets by 1.6%. This relative increased was rivaled only by North American peers, which added 1.5% to their $1.12trn.

Investors predict US funds will do best this year, but are split on forecasts for returns from Japan managers.

About 25% of respondents, polled by the bank before the disaster, expected to increase allocations to Japan, while around 7% planned to cut them.

David Walker

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