The year 2003 was eventful with SARS and the second gulf war hogging the limelight. But the second half saw stock markets around the world rallying.

Let's look at the performance of all the unit trusts (funds) that Fundsupermart carried for the year 2003.

Table 1: Best performing funds for 2003

FUND NAME	RETURNS IN 2003 (%)
OCBC Savers Thailand Fund	155.4
Fidelity Funds - Thailand Fund	125.5
Franklin Templeton Funds - Thailand Fund	117.4
Aberdeen Thailand Equity Fund	110.0
HSBC India Growth Fund	109.9
HSBC Chinese Growth Fund	100.0
DBS Asia Knowledge Fund	84.1
OCBC Savers India Fund	81.3
DBS Shenton Thrift Fund	80.5
OCBC South East Asia Fund	80.5

Source: Fundsupermart
All performance shown here are based on bid to bid prices with dividends reinvested and in Singapore dollars.

The year 2003 was good for most funds. 96% of the funds sold at Fundsupermart with more than a 1-year history (210 out of 219 funds), saw positive returns. More than half (109 funds) had returns that were higher than 30%, and the top 10 funds had returns in excess of 80%. Equities outperformed bonds by a large margin. Equity funds sold at Fundsupermart averaged a return of 40.2% for the year while bond funds returned an average of 6.2%.

What Made The Top 10 List

Asian single country funds accounted for most of the top 10 performing funds for the year (see Table 1). The best performing fund was the OCBC Savers Thailand Fund. It delivered a 155.4% gain in the year 2003. In fact, the top 4 funds were all Thailand equity funds with returns that were over 100%. India and China equity funds also made it into the list with 2 funds managing returns of over 100% for the year. The predominance of Thailand, India and China funds in the top 10 list can be attributed to the fact that these 3 markets were the top 3 performing Asian markets in 2003, and that Asia has been the best performing regional market. A Singapore equity fund, an Asia excluding Japan equity fund and a South East Asia equity fund also made it to the top 10.

Thai Equity Market Raced Ahead In 2003

The Thai SET Index more than doubled from 356.5 points as at end 2002 to 772.2 points by the end of 2003. This was a rise of 116.6%. It was driven by several factors. Economic growth was very strong at 6.3% in the first half of the year and a projected 6.3% for the whole year. The growth projection for 2004 is even higher with economists projecting 7% and the Thai prime minister targeting 8%. Exports have helped to fuel this growth, rising by up to 15% for the year. The local domestic economy has also expanded. On the fiscal side, Thailand had paid off all its IMF debt and accumulated up to US$40.3 billion in foreign reserves. Strong earnings growth coupled with the Thai equity market's low valuations at the beginning of 2003 made the market one of the most attractive in the region, and investors put in their money accordingly.

In 2 reports issued by Fundsupermart on its website in 2003, (one entitled "Don't Overlook Thailand" issued on 12 March 2003, and the other was entitled "More Upside for Thai Market over next 2 to 3 years" issued on 30th June 2003), Fundsupermart noted that Thailand equities had very attractive valuations and robust earnings growth was projected.

Looking forward, we believe that the Thai equities market still has upside potential over a 3-year time frame. However, we acknowledge that the market has already risen by more than 100% in 2003. Therefore, there is likely to be some correction in the short term. It is rare for the same market to be the top performer 2 years in a row. Thus some caution is in order regarding Thai equity funds in the short term.

Table 2: Average Performance Of Equity Funds By Region

REGIONAL FUNDS	PERFORMANCE IN 2003
US equity	23.9%
Europe equity	32.0%
Asia excluding Japan equity	45.5%
Japan equity funds	33.6%
Technology	38.2%

Source: Fundsupermart
All performance shown here are based on bid to bid prices with dividends reinvested and in Singapore dollars.

How The Regional Funds Fared

Fundsupermart compiled the sector average for the key regions by taking the average 2003 performances of all the funds that it sells. As seen in Table 2 above, Asia excluding Japan equity funds returned on average 45.5%, making it the best performing region. The region had one of the lowest valuations amongst the regional markets and has one of the strongest earnings growth. It shrugged off the SARS crisis in a very short amount of time and benefited the most from the recovery in its main export market - US. While the US economy did recover, valuations were not as low, and the US dollar also declined against the Sing dollar. Hence US equity funds ended 2003 as the least exciting regional funds amongst the 4 main regions of US, Japan, Asia and Europe. Nevertheless, an average return of 23.9% for the US region is still a respectable one.

Technology Funds Turn In Their First Positive Year After 3 Years Of Losses

The year 2003 also marked the first year in which technology equity funds finally returned into the black after 3 years of losses from 2000 to 2002. Technology funds averaged a return of 38.2% in 2003, a big comeback after 2002's dismal performance when technology funds hogged the worst performing list.

Fundsupermart noted in its reports "The return of the dot-coms" dated 20th Nov 2002 and "Asia Pacific Chip sales - the under reported recovery" dated 22nd Nov 2002 that the global technology sector started to show initial signs of a recovery in 2002. The pace of recovery gathered pace in 2003, and that contributed to the good performance of global technology stocks in 2003.

Table 3: Worst Performing Funds For 2003

FUND NAME	RETURNS IN 2003 (%)
AIG International Fund - USD Money Market Fund	-2.1
Franklin Templeton Funds - Franklin US Government Fund	-1.7
SGAM Global Guaranteed Fund	-1.1
AIG International Funds - Global Bond Fund	-0.9
DBS Mendaki Capital Protected Fund	-0.6
ACM Investment Series - Short Maturity Dollar Portfolio	-0.2
Commerzbank Singapore Bond Fund	-0.1
AIG International Funds - Singapore Bond	0.0
UOB Optimix Continuous Click Fund S&P 500 - SGD	0.1
Schroder S$ Protected Fund - June 2004	0.2

Source: Fundsupermart
All performance shown here are based on bid to bid prices with dividends reinvested and in Singapore dollars.

There were only a handful of funds that actually gave negative returns (see Table 3). In fact, within the Fundsupermart universe of funds with more than 1-year history, only 7 funds gave negative returns in the year 2003. The worst performing funds were the money market funds, Singapore bond funds and capital protected funds. Funds that invested mainly into US fixed income instruments suffered as the US dollar depreciated against the Singapore dollar last year, and the interest income from these funds were not able to make up for the currency losses. However, as money market funds are expected to give very low returns in general, they can be expected to appear in the worst performing list in a year where equity markets are undergoing a strong rebound.

Going forward, there is a likelihood that the US dollar may continue to depreciate against the Singapore dollar over the next few years. This is because the US current account deficit has gotten steadily worse and the US budget deficit has ballooned in the last few years. With the election year this year, US politicians are likely to drive it down further as they face voters at the ballot box. Though the Federal Reserve has indicated it would keep interest rates at their 40 year low well into 2004 to keep the US economic recovery going, the twin deficit situation means that it is only a matter of time before US interest rates start to move up. In the meantime, the US dollar will continue to depreciate against other currencies including the Singapore dollar. This means that bond funds that are invested mainly into US dollar denominated bonds will continue to be at risk and are not likely to do well for 2004.

Conclusion

The Asian recovery is expected to continue in the year 2004 with economic growth rates expected to be stronger than. Accordingly, earnings growth is likely to be robust. With valuations still below historical averages in a number of markets, Fundsupermart is optimistic that the year 2004 will also be a good year for unit trust investors, particularly those who own Asian equity funds.

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