A flattish August for the FEFI

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A flattish August for the FEFI

September 4, 2009

The FEFI was marginally higher by 0.8% in August, helped by strength in funds invested in property equities and developed markets.

Author : iFAST Research Team & Content Team

Untitled Document

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

FEFI Performance Overview

Equity markets in Asia took a breather in August, after posting strong gains in the previous month. The local China equity market declined 21.7% in the month, hurting investor sentiment in Hong Kong and Singapore. Given the lack of a sizable correction since global stock markets bottomed in March, market sceptics are calling for a significant decline in September, a month which has been plagued by tumultuous moments in financial history. The failure of Lehman Brothers and near-failure of AIG in September 2008 are still fresh in the minds of investors, resulting in some nervousness as we approach the one-year anniversary.

Nevertheless, economic indicators are looking up, and major economies like France, Germany and Japan have pulled out of recession. The US is also widely expected to post positive growth in 3Q 09. We believe that we are still in early stages of an economic recovery, and much economic data supports this view.

A key criticism of stock markets at present is the “stretched” valuations, which are based on depressed recessionary earnings. While 2009 earnings are not much to look at, investors would do well to be forward-looking, where earnings growth in 2010 and 2011 should drive current valuations downwards. Any significant pull-back in the market could be met with strong buying support, with US money market assets recently at US$3.6 trillion, still indicative that there is much liquidity on the sidelines to fuel further gains in the stock market.

Despite the floundering of Asian markets in August, the FEFI still rose 0.8%, on the back of strong developed market performances. As of 31 August 2009, the index closed at 1371.79, up from 1360.23 at the end of July, and from the 1000 points at the end of 2008. The average equity fund on the platform has thus risen by 37.2% in the first eight months of the year, a strong performance in a period touted to be the worst global recession since the Great Depression.

Table 1: FEFI Index Levels
	FEFI	Year-to-date (%)	Month-to-date (%)
31 Dec 2008	1,000	-	-
31 Jan 2009	977.21	-2.3%	-2.3%
27 Feb 2009	921.57	-7.8%	-5.7%
31 Mar 2009	990.44	-1.0%	7.5%
30 Apr 2009	1,097.87	9.8%	10.8%
31 May 2009	1,229.48	22.9%	12.0%
30 Jun 2009	1,245.25	24.5%	1.3%
31 Jul 2009	1,360.23	36.0%	9.2%
31 Aug 2009	1,371.79	37.2%	0.8%
Source: iFAST compilations, as at 31 August 2009, performances in the table are in SGD terms, calculated using bid-to-bid prices, with any income or dividend reinvested.

Property and developed markets led in August

Table 2: Top 5 Equity Funds in August 2009
	Market / Sector	Return (year-to-date)	Return (month-to-date)
Henderson European Prop Sec	European Property Equity	34.4%	15.5%
DBS Glb Prop Securities Fd	Global Property Equity	17.0%	14.8%
First State Glb Prop Invt	Global Property Equity	23.1%	12.7%
Parvest Europe Financials (EUR)	European Financials Equity	40.1%	12.4%
WIOF Adriatic-Balkan Opp A SGD	Adriatic-Balkan Equity	18.6%	11.1%
Source: iFAST compilations, as at 31 August 2009

65% of equity funds turned in positive performances in August, while returns were spread across a wide range: between -9.9% and 15.5%. The positive return of the FEFI this month clearly indicates the importance of diversification; developed markets like the US, Europe and Japan turned in positive performances while Asia ex-Japan lagged with a 3.4% decline (in SGD terms).

Funds invested in Europe did particularly well in August, as the Euro-zone turned in a better-than-expected 0.1% contraction in 2Q 09, coming after 1Q 09 saw a contraction of 2.5%, the sharpest decline in economic output on record. The Euro-zone economy was boosted by Germany and France, who both reported 0.3% quarter-on-quarter growth, ahead of consensus estimates. European stocks have responded well to the economic data, especially in the case of property stocks, landing Henderson European Property Securities Fund the top position (with a 15.5% monthly return) in this month’s update.

Global property stocks were also boosted by better data coming out of the US housing sector, with prices appearing to stabilise and existing home sales picking up, allowing DBS Global Property Securities Fund and First State Global Property Investments to take second and third spot with gains of 14.8% and 12.7% in August.

Greater China funds lagged

Table 3: Bottom 5 Equity Funds in August 2009
	Market / Sector	Return (year-to-date)	Return (month-to-date)
SGAM Golden China Fund S$	Greater China Equity	34.7%	-9.9%
Fidelity Taiwan USD	Taiwan Equity	36.7%	-8.6%
Fidelity Gr China USD	Greater China Equity	40.3%	-8.1%
DBS Shenton Greater China	Greater China Equity	35.5%	-7.3%
DWS China Eqty Fund Cl A SGD	China Equity	43.3%	-7.3%
Source: iFAST compilations, as at 31 August 2009

The Greater China market has certainly sprung to life in 2009, rebounding strongly from lows made in October 2008. However, fears over a withdrawal of liquidity as bank lending slowed along with an increase in IPOs sparked a mini-bear market in the China A-share market in August (the benchmark Shanghai composite slumped over 20% from a recent peak on 4 August 2009) with the contagion spreading to the H-share market.

While A-shares are only available to local Chinese investors (and to a much lesser extent, some foreign qualified investors), investors in the Hong Kong-listed Chinese companies used sharp declines in the A-share market as an excuse to book profits, resulting in widespread declines in equities in the Greater China region. The five bottom-performing funds in August are all invested in the Greater China region, and lost between 7.3% and 9.9% in August.

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The Research & Content team is part of iFAST Financial Pte Ltd.

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