Mutual funds registered for sale in Hong Kong posted an average gain of 1.71% in February, recovering from January's average loss of 6.17%, according to Lipper data.

Equity funds posted an average gain of 2.36%, the first time that they have reported an on-average return since October 2007. As recently as January, equity funds were the worst performers in Hong Kong, posting an average 10.68% decline.

Commodities funds outperformed all other funds by asset type, posting an average return of 12% last month. They were driven by a robust rally among energy, metal, and agricultural product prices.

Crude oil futures climbed 11% in February and finished the month above the psychological barrier of $100 a barrel after the Turkish army moved into Northern Iraq to attack the Kurdish rebels. The military action re-aroused concern over the stability of the crude oil supply.

Gold and silver prices jumped 5.09% and 17.31%, respectively, in February on expectation that falling US interest rates would boost their demand as a hedge against inflation. Platinum prices surged 25% in February as Anglo Platinum, one of the worldÆs biggest producers of precious metals, reported damage to one of its smelters in South Africa.

Prices of agricultural products continued to be driven by speculation over inadequate growth of their supply to meet surging demand. Soybean futures jumped 14.52%, while wheat futures climbed 14.59% in February.

Bond funds posted an average gain of 0.60%. Mixed-asset funds posted an average gain of 1.27%.

ôWith both corporate earnings growth and credit quality subject to further downward revision, the outlook for equities and non-government bonds remains challenging,ö says Eric Wong, head of Hong Kong research at Lipper. ôWith the global economy slowing and anticipation of further interest rate cuts, the outlook for government bonds remains positive.

The US Federal ReserveÆs latest action to inject capital into the financial system through lending US Treasuries in exchange for asset-backed securities, is a positive step in its attempt to boost liquidity and restore confidence in the global financial markets, Wong says.

However, he notes that this action exposes that its previous actions û which include successive interest rate cuts and several large-scale capital injections into the financial system û have proven inadequate to alleviate concern among investors over economic and corporate earnings prospects. It also confirms that the credit crunch problem -- unleashed by the collapse of the US subprime loan market -- is very severe and difficult to resolve, he adds.

Average performance of fund groups registered for sale in Hong Kong in February, by asset types:

Commodities +12.00%
Equity +2.36%
Hedge/Multi Strategies +2.12%
Mixed Assets +1.27%
Hedge/Long/Short Equity +1.18%
Real Estate +0.78%
Money Market +0.76%
Guaranteed +0.62%
Bonds +0.60%
Protected -0.11%