Chart 1: Year-to-date performance of the FEFI

FEFI Performance Overview

After rising in March and April, the equity markets continued to surge in May, showing that this rally still has legs to run. The performance of equity funds on the iFAST platform was also very strong, as reflected in the 12% surge in the FEFI in the month of May alone. The FEFI is up 22.9% so far this year (all data as at 29 May).

More green shoots surfaced in the US, with the forward-looking ISM composite indices pointing to increasing stability in the US economy. In the month of April, the ISM manufacturing index rose to 40.1, while the ISM non-manufacturing index rose to 43.7. While both indices remain below the 50 level (a level above 50 indicates an expansion in the economy), the month-on-month gains were encouraging. We do not believe the US economy is set for a swift recovery, but we do expect its economy to see a quarter-on-quarter positive expansion as early as 3Q 2009.

In Asia, the Indian stock market surged after the resounding victory of the Congress party. The strong mandate is widely seen to pave the way for much-anticipated economic reforms, which were impeded by the Communist party in the previous Congress-led coalition government. Before trading was halted on Monday 18 May, the SENSEX skyrocketed 17% in less than one minute of trading.

INDIA, SINGAPORE, ASIA EX-JAPAN AND RESOURCES OUTPERFORM

The top five equity funds on iFAST delivered an outstanding performance with an average increase of 39.2% in May.

The sectors and markets which outperformed in May include India, Singapore, Asia ex-Japan and resources. Table 2 has two Indian equity funds: the SGAM India Infrastructure Fund and the HGIF Indian Equity-A SGD Fund. After lagging behind a few other markets in the first four months of this year, the Singapore market sprang to life in May and posted a strong gain. The FTSE Straits Times Index was up 21.3% in May. This was reflected in the returns of both the Legg Mason SEA Special Situations Fund (which has up to 37% invested in Singapore, based on the April factsheet), and the HGIF Singapore Equity-A USD Fund.

Asian markets posted extremely strong returns in May, as investors took a positive view of growth prospects for the region. The MSCI Asia ex-Japan Index rose 15.6% in May (in USD terms). Investors are looking to China, India as well as the emerging markets economies to drive future growth. We continue to believe that growth drivers remain intact in Asia despite the recent economic downturn. Resources had a good run in May too. Resources funds did well and markets which are taken as a resources play also performed strongly. These include Russian equity funds.

UNDERPERFORMERS: HEALTHCARE AND TECHNOLOGY LAG BEHIND IN MAY

Funds which performed less well in May include those which invest in technology and healthcare. Healthcare is often seen as a defensive play and healthcare funds tend to underperform during a market uptrend. The Nasdaq 100 index, a proxy for the global technology market, outperformed the US equity market so far this year, and we believe that much of the outperformance in the recovery cycle (given the high sensitivity of the technology sector to the economy) has already been realised. In addition, we remain cautious on the Asian technology sector which seems to be pricing in a swift economic recovery and a return of normalised profitability.

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