There's no respite for mutual funds registered for sale in Malaysia which posted an average loss of 0.7% in February, extending a 0.16% average drop in January, according to Thomson Reuters Lipper data. All that is on top of an average decline of 22.28% in 2008.

By asset type, guaranteed funds (+0.33%) and money market funds (+0.16%) posted average gains last month. Commodities funds (-6.28%) substantially underperformed other asset types. They were led down by falling agricultural product prices -- corn, soybean, and wheat futures fell 8.0%, 10.8%, and 8.8%, respectively, on concerns the stimulus plans launched by governments around the globe would fail to stem the worldwide economic recession that has suppressed demand for agricultural products.

The poor performance of funds for sale in Malaysia comes as no surprise to Eric Wong, head of research at Thomson Reuters Lipper. After all, he notes, global equity markets sank further in February on deteriorating global economic fundamentals; on speculation that Bank of America, Citicorp, and other leading US banks might be nationalised by the US government; and on fears that Eastern Europe might unleash its own wave of defaulting bank loans.

There were some "bright stars" in the otherwise gloomy picture, Wong says, pointing to China shares. Equity markets in China registered high single-digit growth on persistent speculation that the government's spending plan, interest rate cuts, and resumption of bank lending would help the Chinese economy weather the global economic recession, Wong says.

On the local front, Malaysia's Kuala Lumpur Composite Index gained 0.7% in February. The equity market was supported by anticipation that the government's second stimulus plan would be substantially bigger and more far-reaching than the first stimulus plan announced in November 2008.

The Malaysian government's initial M$60 billion ($16 billion) stimulus plan was seen as a positive step in the right direction to rejuvenating the economy. On March 10, the Malaysian government announced that it would spend the M$60 billion over the next two years to stimulate economic growth in the country. The stimulus plan, equivalent to 9% of Malaysia's GDP in 2008, exceeded the market's expectations and is a positive step in the right direction to rejuvenate the economy. However, the stimulus plan has a major drawback: it will lift the government's budget deficit to 7.6% of the country's GDP in 2009, increasing the downgrade risk of Malaysia's sovereign credit rating, Wong notes.

Plus, Wong says, since the stimulus plan will be financed mainly by a substantial increase in the issuance of government bonds, the substantial increase in the supply of government bonds in the bond markets, coupled with a higher downgrade risk of the sovereign credit rating, could tarnish the investment appeal of fixed-income securities.

Wong believes that what's happening in the US and how the financial crisis there is spilling over to the rest of the world is going to have a greater bearing on how local stock markets, such as Malaysia's, will play out.

"The external market environment, which remains negative, rather than internal market factors, will have a more powerful role in determining their direction," he says.

Meanwhile, equity funds lost an average of 1.32% in February. Nineteen of the twenty-five equity fund types reported losses for the month. The average total return of equity funds was dragged down mainly by equity emerging markets Far East (-16.08%), equity sector real estate global (-14.07%), and equity sector pharmaceutical and healthcare (-10.52%) --  consisting of six equity funds that were all among the 10 worst performing equity funds in February. They included AmGlobal Property Equities (-17.66%), HLG Vietnam (-16.08%), and Alliance Global Diversified Property (-14.58%). On top of the performance table by equity fund type was AmPrecious Metals (+2.49%).

Generally, Islamic funds fared better with an average gain of 0.12% for February (their fourth consecutive month of recording a positive return), 82 basis points better than the average return of the broader fund universe. Among the 14 Islamic type fund groups tracked by Thomson Reuters Lipper, eight reported gains for the month, with equity sector gold and precious metals (+2.49%) lying at the top of the performance table.

Average performance of fund groups registered for sale in Malaysia in February:

  • Guaranteed +0.33%
  • Money Market +0.16%
  • Protected -0.15%
  • Bonds -0.28%
  • Mixed Asset -0.31%
  • Hedge/Fixed Income Arbitrage -0.67%
  • Equity -1.32%
  • Commodities -6.28%