Singapore-registered unit trusts declined by an average of 4.31% in February, extending an average loss of 1.49% the previous month, as persistent weakness in the global macro and credit environment led to gloomier outlooks for growth, exports, and unemployment in the city-state, according to data provider Lipper.

The best performing asset class was money market funds (+1.38%), with guaranteed funds close behind (+1.16%) as risk aversion continued to rule allocation decisions. The other positive asset class in February was hedge funds (+0.51%), up on stock-picking and cautious macro bets.

Equity funds declined by an average of 5.99%, and even commodity funds lost 3.33% in choppy markets, despite energy and precious metals prices closing February higher. Managers could not reap any benefits from diversification, and mixed-asset funds were also down 3.36% on the month.

In the first two months, money market (+2.90%), guaranteed (+2.86%), and bond (+2.28%) funds were all still in positive territory, as were hedge funds (+2.03%). This again reflected the climate of tighter credit and lowered risk appetites.

The best performing fund sectors for February were, equity Taiwan (+4.65%) and equity sector gold and precious metals (+3.21%). Money market (AUD: +3.15%, USD: +2.40%) and short-term bond (USD: +2.10%) funds also posted healthy gains on average. The currency effect from a strengthening US dollar also contributed to the performance of some of the sectors denominated in US dollars.

Rajeev Baddepudi, Singapore-based senior research analyst for Asean at Lipper, says the dominant market theme in February was a lack of price guidance amid the white noise of ratings downgrades, disappointing earnings reports, and gloomy growth forecasts. The few pockets of opportunity were in safe-haven sectors (gold and other precious metals) and select regional markets (China, Taiwan), he notes.

The outlook for the Singapore economy is similarly dire, Baddepudi points out, as a recent survey of economists by the Monetary Authority of Singapore (MAS) shows: Singapore's GDP is set to shrink 4.9% in 2009 (up from the 1% contraction estimated in a similar survey done last December), with all key sectors except for construction registering negative growth. The decline might be even sharper if exports continue to fall.

"As the trade-centred city-state faces its worst recession since independence, further monetary policy easing might be in store at the MAS's next official meeting in April," he says. "That said, there has been some respite in the second week of March, with an ongoing bear market rally in global equities on the back of remarks on fixing the crisis by the Federal Reserve chairman, Ben Bernanke, and Citigroup's announcement that it is operating at a profit."

Baddepudi says it is encouraging that governments and policymakers globally continue to be proactive and aggressive in their efforts to control and contain the crisis and to kick-start the recovery process. He notes, however that the reaction to these policy measures has been guarded at best, given that at the core this is also a crisis of confidence and it follows that markets are bound to remain volatile in the near term.