By Rita Raagas De Ramos 19 August 2008
Lipper data shows commodities funds are continuing to weigh on the performance of mutual funds in Malaysia, bringing average year-to-date losses to more than 11%.
Mutual funds registered for sale in Malaysia posted an average loss of 1.64% in July, extending their average 4.47% decline in June, according to data from Lipper. That brings the average mutual fund losses in Malaysia to 11.24%.
Commodities funds were the worst performers, posting an average loss of 9.93% last month. Such portfolios suffered sharp draw downs because many natural resources prices collapsed in July. Crude oil futures plunged 11.4% on reports of declining consumption in the US and Asia as well as OPEC increasing exploration and Brazil resuming production. News that the US and Iran had engaged in dialogue over the latter's nuclear energy program eased the geopolitical tension in the Middle East and further drove down crude oil prices.
Equity funds posted an average loss of 2.58% last month, mainly due to heavy losses suffered by portfolios that invest in gold and precious metals and natural resources, which posted average losses of 15.27% and 7.9%, respectively. Only portfolios that invest in emerging markets Far East (+8.25%), pharmaceuticals and health (+5.45%), banks and financials (+0.79%), and China (+0.33%) reported gains for the month.
HLG Vietnam posted a return of 8.25% last month, outperforming all other equity funds in July. It was followed by HLG Global Healthcare (+5.45%) and two equity China funds - ING China Access (+3.39%) and OSK-UOB Big Cap China Enterprises (+2.67%).
"China equity funds were supported by better-than-expected second quarter bank earnings in the mainland and by the Beijing Summer Olympic Games," says EricWong, Lipper's Hong Kong-based head of research. "However, a government report showing the country's GDP growth decelerating to 10.1% in the second quarter restricted their intra-month gains."
The worst performing equities funds last month were AmPrecious Metals (-15.27%), OSK-UOB Resources (-7.90%), and PRUglobal basics (-10.63%).
Bond funds posted an average loss of 0.46% in July. The three best performing bond funds in July were: RHB Islamic Bond (+1.90%), RHB Asian Total Return (+0.89%),
and AUTN Bond (+0.75%). The three worst performing bond funds were Avenue
IncomeEXTRA (-10.50%), Avenue BondEXTRA (-8.96%), and AmanahRaya Unit Trust (-4.66%).
Islamic funds, meanwhile, posted an average loss of 2.16% last month.
With the US corporate earnings reporting season closing, market attention is no now returning to the economy, Wong says. The latest reports on economic parameters such as GDP growth, manufacturing and service industry activities, retail sales, and unemployment rates continue to depict a withering global economy with no signs of bottoming out. Inflation has yet to retreat from the government's target in many countries, rendering their central banks reluctant to lower interest rates to revive their economies. Property markets are still lacklustre in many countries, with weak home sales and non-abating property foreclosures.
Looking at the bright side, Wong notes that an opportunity has recently emerged for the global economy to end its contraction and for corporate earnings to resume growth. Crude oil prices have retreated sharply from a record-high of $147.27 per barrel in mid-July. Also, corn and soybean prices have slid 36% and 25%, respectively, since the beginning of July.
"Falling food and energy prices will ease inflationary pressures in many countries, allowing central banks to resume lowering interest rates," Wong says. "Lower interest rates should trigger more families to refinance their mortgage loans and reduce property foreclosures, which can stabilize the property market and reduce the risk of a credit crunch in the financial markets.
On the local front, many Malaysian companies are scheduled to release their quarterly earnings in the coming weeks, which may trigger some sparkle in the financial market, Wong says. However, lingering political uncertainty may nevertheless cause investors to remain cautious about investing in Malaysia, he notes.
The arrest of opposition leader Anwar Ibrahim in July triggered selling in the equity market. But his subsequent release restored some confidence. This is the second time such an accusation has been brought against him since 1998. The same charge 10 years ago was eventually struck down by Malaysia's Supreme Court, but only after Anwar served six years in prison on a related abuse of power charge.
