Abu Dhabi hedge fund makes $300m emerging-market wager

Tensai Holding Co., a family office that manages $3bn of hedge-fund and private-equity investments, is putting more money into emerging-market stocks and distressed debt as it expects Asia to outperform the rest of the world.

The firm’s quantitative hedge fund is investing $300m to $400m in the developing world this year, as much as 15 per cent more than in 2019, said Soufyane Al Hayan, the president of Tensai in Abu Dhabi.

The manager has already moved about 90 per cent of that money into markets such as China and India, after cutting some positions in developed markets, he said.

Returns on emerging-market stocks, which erased all of their 2020 losses on Tuesday, are set to surpass developed markets in the first half of next year, Al Hayan said. A weaker dollar and a surge in global liquidity as a result of central banks’ response to the coronavirus crisis will support riskier assets.

“I see way better returns than in developed markets,” Al Hayan said in an interview. “Developed markets are mostly consolidating.”

Tensai isn’t alone in tilting toward emerging markets, as the world’s $15 trillion pool of negative-yielding debt and the record-breaking rally by the S&P 500 Index intensify demand for riskier assets.

HSBC Global Asset Management is telling savers to switch to developing-nation debt and equities, while Sanford C. Bernstein has moved to overweight on emerging-market stocks for the first time in two years, favoring Asia.

Confidence that Asia is handling the coronavirus outbreak better than Latin America, the global epicenter of the pandemic, also prompted Tensai to shift its investments from Mexico, Brazil and Argentina since the start of the virus crisis this year, he said.

Latin American energy exporters are also feeling the pain from the drop in oil prices, he said.

“We expected that they would have pretty disastrous consequences over time, and we see it actually right now, with Mexico for example,” Al Hayan said.

Tensai counts China among its favorites. It’s also bullish on India, even as the nation faces the first annual economic contraction in four decades. Asia’s third-largest economy is attracting businesses looking to diversify supply chains amid the US-China trade tensions and the coronavirus outbreak, Al Hayan said. Oil prices, which will probably remain low until next year, will also help its economy, he said.

The hedge fund says it has made “double digit” returns every year since it was set up in 2015, outperforming benchmarks such as the MSCI Emerging Markets Index and S&P 500.

“The coronavirus has opened up a lot of opportunities,” Al Hayan said. “We decided to shift a little bit of money to riskier investments with better potential of returns on different types of instruments in emerging markets.”