Fund Performance Review (April 2008) : A short break or a fresh start?

Global equity markets returned to a positive territory in April, despite the growing sense of disquiet about the dangers of wide-spreading sub-prime jitter and the consequences of the .....

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April Fund Performance Review: A short break or a fresh start?
Editorial &Research Team, Morningstar Asia Ltd. | 2008-05-26

Global equity markets returned to a positive territory in April, despite the growing sense of disquiet about the dangers of wide-spreading sub-prime jitter and the consequences of the intensifying inflation. For the month, MSCI World Index rose 5.34 percent, while average funds in Morningstar Global Large-cap Blend Equity were up 4.63 percent. Bonds, heroes in the chapfallen first quarter, became laggards in April. JPY bond funds, dollar global bond funds and euro global bond funds posted losses of 5.98 percent, 1.06 percent and 2.98 percent respectivel

y. It is worth noting that dollar bond funds outperformed euro bond funds in general.

What's new about the global locomotive?
The warning "financial markets remain under considerable stress", highlighted by Ben Bernanke, Fed Chairman, did not dampen investors' hope that the worst time of the credit meltdown is over. Nonetheless, their hope may not be grounded -- a surge in jobless claim, more write-downs by banking behemoths like JP Morgan, and weak housing market data vex investors how long the credit crisis will last.

Federal Reserve cut its key interest rate from 2.25 percent to 2 percent on 30th April to stimulate the gloomy economy. However, Fed chairman started to hint cuts in rates may be over, as inflation topped on the heels of the aggressive monetary easing. Actually, the Fed is in a ticklish position that the fragile economy needs more stimuli but recent pickup in inflation becomes a huge stranglehold. Despite all uncertainties and difficulties, U.S. equity funds had a strong rebound last month and mid-cap equity funds took the lead. Over the month, U.S. Mid-cap Equity funds and U.S. Large-cap Blend Equity funds posted shiny gains of 6.08 percent and 5.34 percent respectively, placing themselves the first quartile of the category ranking.

China: remains in mother's care
After Chinese investors cried on TV that PRC government did nothing to save their losing portfolios and the Shanghai Composite Index plunged to a psychological junction of 3,000 points, Chinese government eventually took steps to soothe investor worry -- The Ministry of Finance rolled back a year-old tax increase on stock transactions to 0.1 percent of the value of each purchase or sale of stock. Under the government's care, major gauges in mainland China as well as China equity funds bounced. For the month, China equity funds posted a 13.25 percent gain, leading all other categories. Helped by this sanguine atmosphere in U.S. and mainland China, Hong Kong equity funds, an underperformer last quarter, registered a gain of 9.83 percent last month.

Strength brought by the KMT's landslide victory could not extend in April. Although Taiwan large-cap equity funds are still a leader in term of 3-month return, it posted a relatively svelte gain of 3.74 last month, underperforming its Asian peers.

Sector funds round-up
Crude oil price struck a stunning high of USD 120 per barrel and energy equity funds cheered for the hike. With 10.76 percent surge last month, energy equity funds become the best performing sector funds in April. It's interesting to note that U.S. Energy Information Administration, a price bear in crude oil, also raised its 2008 forecast to an average to USD 101 a barrel. Gold, closed at USD 876 per oz. in April, remained spiritless for the month. Precious metal equity funds, a sector funds leader in the first quarter, lost 7.64 percent last month, sitting low at the ranking.

Tech stocks are another comeback kid last month. Swimming against the murky economic outlook, lots of tech stocks, like Google, fared well last month in the light of better-than-expected results. For the month, average funds in Morningstar Sector Equity Technology category were up 8.37 percent.

Long-awaited comebacks
With 7.27 percent rebound in MSCI Japan Index last month, although it still underperformed the MSCI Asia Pacific ex-Japan Index by 0.81 percent, Japanese equities delivered a long-awaited comeback to investors who have borne for a long time. Actually, some Japanese giants, like Toyota, remained in hot water during the crunch. On the other hand, some Japanese banks, including Sumitomo Mitsui Banking and Mizuho Financial, expanded quietly to the global syndicated-loan market in the current global economic downdraft, and this aggressive move will probably determine their prospects in this uncertain world. For the month, Japan large-cap equity funds gained 6.62 percent.

India market performed another long-awaited comeback. Although India's magical growth rate is unlikely to sustain, its government is taking initiatives to cope with it as the election is looming, propping up the weak equity market. However, rising prices remain a key concern to investors, even though India's central bank raised the reserve requirement ratio at April-end to curb it. For the month, India equity funds gained 8.59 percent.

Editorial &Research Team, Morningstar Asia Ltd. can be reached at hksupport@asia.morningstar.com
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