Hans Schlaikier, Hedgeweek

Mirae Asset releases mid-year Emerging Markets update… Och-Ziff Q2 profits rise on higher fees…

The twenty-page report on Emerging Markets, authored by the Mirae Asset senior investment team led by CIO José Gerardo Morales, CFA, reflects back on the first half of 2014, in addition to providing insights for various regions for the remainder of 2014.

The report states that emerging market equity performance has differed somewhat from consensus predictions.  Emerging market equities, as measured by the MSCI Emerging Markets Index, returned 6.1 per cent as of mid-year, due to falling U.S. 10-year yields, the relative attractiveness of emerging markets versus European yields, and elections in Turkey, Brazil, India and Indonesia. Mirae Asset contends that the rebound of emerging markets was further helped by the fact that much of the impact of tapering by the U.S. Federal Reserve was already seen in the second half of 2013, followed by quick damage-control exercises by the central banks of the "Fragile Five" (Brazil, India, Indonesia, South Africa and Turkey), all of which have outperformed versus the MSCI Emerging Market Index year to date.
 
From a regional perspective key economies of China and India show signs of stabilization, where reforms will be an important part of the underlying story in both countries in the second half of 2014.
 
In Latin America, Brazilian equities are likely to remain volatile until October elections, and remain reactive to poll readings and political headlines.  The Brazilian market may offer upside potential in the event of a politically driven re-rating, both before and after the presidential vote.
 
Mexico remains an attractive market despite high equity valuations and lagging the region during the first half of the year.
 
Elsewhere the Euro-area linked economies of Poland, Hungary and the Czech Republic are faring much better than Russia, South Africa and Turkey. The Turkish market is likely to remain volatile, though it offers good opportunities with accelerating growth potential. 
 
Mirae Asset feel that overall, it remains imperative to retain a selective and active approach to emerging markets as we enter the second half of 2014. Elections and the actions of central bankers will continue to significantly impact key regions in emerging markets for the remainder of 2014.
 
In June, while the MSCI World Index posted an average gain of 1.8 per cent, equity hedge funds continued to lag, returning a 1 per cent gain on average, notes UBS. In its “Hedge Fund Monthly Update” for June 2014, the firm points out that several European equity managers also struggled in June as regional equity markets lagged on some weaker economic data.
 
The UBS report points out that equity hedge funds continued to lag global equity markets in June by posting 1 per cent on average as against the 1.8 per cent rate clocked by the MSCI World Index.
 
While analyzing the YTD performance, the UBS report notes that equity long short has returned 1.9 per cent, as against the 6.2 per cent clocked by the MSCI World Index. The UBS report also demonstrates that several European equity managers struggled in June as regional equity markets lagged on some weaker economic data. However, the report points out that Asian and Emerging Markets equity managers had stronger performances as their related markets were buoyed by enhanced investor sentiment.
 
Deutsche Bank, in its “Monthly Hedge Fund Trends” report for July 2014, points out that the median fund gained in all strategies in June, led globally by emerging markets equity:
Taking a closer look at the year-to-date performance, the DB report notes that year-to-date gains continue to be led by distressed strategies with a 6.7 per cent gain, followed by credit (5.27 per cent gain) and event (4.48 per cent gain) strategies.
 
The DB report notes also that for the month of June, equity l/s strategies performed well regionally. For instance, emerging markets equity led in Europe last month with the median fund returning 2.27 per cent
 
Asia too witnessed strong performance from equity l/s strategies. For instance, Japan l/s and China l/s led returns with 2.32 per cent and 2.13 per cent, respectively, for June 2014
 
Elliott Management Corp., Paul Singer’s hedge-fund firm, sold shares in Wing Hang Bank Ltd. for HKD3 billion (USD387 million) near the end of Oversea-Chinese Banking Corp’s offer to take the lender private.
 
Bloomberg reports that Elliott, with USD24.8 billion of assets, sold its entire holdings of 24 million Wing Hang shares at HKD125 each off exchange on 29 July according to a filing posted on the website of Hong Kong’s stock exchange yesterday.
 
The firm, based in New York, had built up the 7.8 per cent stake by July 2 amid the USD5 billion offer by OCBC in Singapore to acquire the Hong Kong bank and take it private, according to a regulatory notice. Elliott sold the shares at the same price that OCBC offered.
 
The share sale represented a departure from Elliott’s past practices, which involved staying invested in some Asia deals for as long as more than four years, waiting for sweetened offers.

The latest notice appears to confirm that Elliott tendered the shares before the OCBC offer closed. About 1.3 million Wing Hang shares were traded on the stock exchange in the last week before OCBC’s offer closed on July 29.
 
Elliott paid HKD125 each for 8.7 million Wing Hang shares on July 2, boosting its stake in the bank from just under 5 per cent, according to a notice posted on the website of the city’s stock exchange. The hedge-fund company didn’t disclose at what price it bought the initial 15.3 million shares.
 
OCBC, Southeast Asia’s second-largest lender, said in interviews and through exchange statements that it won’t raise the offer. OCBC boosted its Wing Hang stake to 97.5 per cent by time the offer ended, more than the 90 per cent regulatory threshold required for it to proceed with the privatization, according to a joint statement on July 29.
 
Elliott is no stranger to such so-called holdout positions in Asia, pitting it against some of the region’s most powerful families. In April 2008, minority shareholders of Pacific Century Premium Developments Ltd., then 16 per cent owned by Elliott, blocked a buyout by parent PCCW Ltd. Pacific Century went on to declare a special dividend in 2010.
 
PCCW is controlled by Richard Li, son of Asia’s richest man Li Ka-shing, Elliott sold its stake in 2012.
 
Och-Ziff Capital Management Group LLC (OZM), the hedge-fund firm run by Daniel Och, said second-quarter profit rose 17 per cent on higher management fees.
 
Distributable profit, a measure excluding costs related to Och-Ziff’s 2007 initial public offering, increased to USD90.4 million, or 18 cents a share, from USD77.5 million, or 16 cents, a year earlier, the New York-based company said today in a statement. Earnings per share matched the average estimate of eight analysts surveyed by Bloomberg.
 
Higher management fees were partially offset by lower incentive income, which is tied to the performance of the firm’s funds. The firm, known for its multistrategy hedge funds that bet on everything from rising and falling stock prices to mergers and bankruptcies, managed USD45.7 billion as of Aug. 1, and has sought to expand its credit, real estate and long-short equities businesses to attract clients.
 
Investors deposited a net USD2.6 billion into Och-Ziff funds in the second quarter, bringing assets as of June 30 to USD45.9 billion. Clients redeemed about USD252.9 million since the end of the quarter through Aug. 1.
 
Och-Ziff reported earnings before the start of regular trading in New York. The shares declined 6.4 per cent this year through yesterday. The firm disclosed in March that U.S. regulators are investigating whether it broke bribery laws in accepting an investment from a sovereign wealth fund.
 
Och-Ziff’s OZ Master Fund fell 0.1 per cent in July and gained 2 per cent this year, the firm said in a filing yesterday. The OZ Europe Master Fund rose 0.3 per cent last month, paring year-to-date losses to 1.7 per cent and the OZ Asia Master Fund climbed 2.4 per cent in July and declined 4.4 per cent in 2014.

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