Hedge funds usually thrive on volatility, but many of them are sitting out the emerging market turmoil even as they become more positive on the segment.
Greater differentiation among global emerging markets, leading to less correlation within the asset class, should offer hedge funds more scope for returns as they typically make both long and short bets.
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"Hedge funds are still viewing emerging markets as a great opportunity now that it's no longer moving in synch with other markets," said Nicolas Campiche, chief executive officer for alternative investments at Swiss private bank Pictet.
But he added, "We're very picky," with most of the exposure through macro managers.