Emerging market hedge funds tread carefully as macro uncertainty grows

Long-term fundamentals in emerging markets remain compelling, but hedge funds are treading carefully as rising inflation and a slowdown global economic growth threaten to undermine short-term returns.

Hedge funds are turning cautious on emerging markets as efforts to deal with inflationary pressures threaten to undermine near-term growth in many developing countries.

Emerging market equities, bonds and currencies have outperformed developed market securities since 2009 as investors have embraced the growth story and clean balance sheets in ­developing countries.

But the inflow of capital into emerging market assets has made them expensive relative to economic fundamentals, says Paul McNamara