New research from Credit Suisse/Tremont compares the current environment for hedge funds in the emerging markets sector with the climate during the Asian financial crisis in 1997-1998.

It finds that, while some hedge fund observers have speculated that hedge funds may be headed for a financial crisis similar to the Asian financial crisis, the emerging markets sector of the Credit Suisse/Tremont Hedge Fund Index remains resilient and exhibits continued potential for positive growth.

“Compared with the 1997-1998 periods, the current emerging market environment remains healthy, with
corporate profits exceeding expectations, default rates falling to their lowest level in years, disciplined fiscal policies, floating currencies, trade surpluses, paid-off foreign currency debt, and improved corporate earnings and governance,” it reports.

Also, the individual components of the Credit Suisse/Tremont Emerging Markets Index performed visibly differently to each other during the 24 month period leading up to the market corrections of 1998 compared with 2006. “The presence of performance outliers during the 1998 period suggested a pattern of wider diffusion and generally more volatile market environment,” it notes.

The research also suggests that a changing investor profile, from high net worth individuals to large institutions, may explain why lower levels of volatility are the trend as investors risk appetite declines.