Fund Performance Review (November 2008): Governments find way to stifle fire

Bank of England slashed its key interest rate by 1.5 percentage points to 3 percent, the lowest since 1955; European Central Bank cut its key rate by a half percentage point to 3.25 percent; Swiss National Bank also brought its rate down by 0.5 percentage point. Thanks to those emergency moves, European equity funds could escape from the worst landscape of the performance ranking last month. For the month, Spain Equity fund, with a slight loss of 1.12 percent, was the best performing category among all European equity funds.

The Fed also announced a 0.5 percentage point cut to the key rate, which is regarded as too late and too little, in late October, but it could not earn as much applause as central banks in Europe. After all, the market can no longer trust George W. Bush, the lamest duck in the U.S. history, Ben Bernanke, an untested scholar chairing the Fed, and Henry Paulson, who suddenly announced that U.S. government is not going to spend a penny in the US$700 billion bailout plan to buy any troubled assets from financial institutions. In November, U.S. equity funds sat low in the ranking, and U.S. Large-cap Blend Equity fund, with a loss of 7.53 percent, was the best among its U.S. equity fund peers.

China stimulus package took effect
Comparatively, China is in a better shape than America and Europe. In early November, PRC government unveiled a stunning 4 trillion yuan (16 percent of GDP) stimulus package, which primarily aims at maintaining an 8 percent economic growth in 2009. Investors in general cheer for the package, but not all economists cast their vote to the plan – 8 percent GDP growth in 2009 seems an unachievable dream in the current tsunami. In late November, the People’s Bank of China unexpectedly lowered the benchmark interest rate by 1.08 percent, showing that Chinese government is going to boost the economic growth at all costs. The stimulus package as well as the rate cut provided China equities a fertile ground to perform a strong rebound – China Equity fund gained 4.0 percent last month, which is the number three among all Morningstar categories.

Be cautious: country risk of Emerging market
In November, incidents in Thailand and India remind investors that country risk in emerging markets is always high. In late November, armed anti-government protesters entered the control tower of Suvarnabhumi airport, causing hundreds of flights to be cancelled. Although the Constitutional Court eventually dissolved the issue, the political instability remains a key concern to investors.

26th November 2008 is an unforgettable date for Indians – carnage in Mumbai emptied the street, and more than 170 people died in this 911-alike terrorist attack. Some would regard this atrocity as an opportunity for India and Pakistan to talk peace, but for investors, it would raise the country risk of Indian equities to a stunning level. For the month, average funds in the India Equity category lost of 8.29 percent.

Gold and oil moved apart
Gold regained power in November as cheap gold attracted long-term investors’ attention. For the month, gold price picked up from US$ 730 per ounce to around US$ 800 per ounce. In November, with a stellar gain of 11.84 percent, Morningstar Sector Equity Precious Metals category became the number one among all Morningstar categories.

Oil price continued its weakness in November, as darkening global economic outlook overshadows its prospect. Although OPEC decided to cut oil supply, it failed to underpin the freefalling oil price – crude oil price fell from around US$ 70 per barrel in early November to a US$ 50 level. For the month, energy equity funds and Russia equity funds, which invest heavily in oil and gas sector in general, lost 5.11 percent and 18.34 percent respectively.

US Treasuries still the save-haven
Bond funds generally outran equity funds in November. Although the U.S. economy is in hot water, investors still regard bonds, especially treasuries, as safe-haven during the crisis. The Dollar Government Bond category, Dollar Corporate Bond category and Dollar Diversified Bond category, with positive gains of 2.57 percent, 1.9 percent and 1.57 percent respectively, ranked in the first decile among all Morningstar categories. But investors should note that a low interest rate environment and increasing deflationary pressure may not be favorable to bonds’ future performance.