Mutual funds registered for sale in Hong Kong posted an average gain of 3.69% in April, reversing MarchÆs average loss of 2.09%, according to Lipper data.

Equity funds posted an average gain of 5.96% in April, outperforming other asset types. On-average, bond funds declined 0.31% while mixed-asset funds gained 2.53%.

ôSeveral fundamental parameters such as the US housing market, unemployment rate, wage growth, and food and natural resource prices suggest that the global investment climate remains challenging,ö says Eric Wong, head of Hong Kong research at Lipper.

ôInvestors must remain vigilant and should avoid overweighting their portfolios in high-volatility assets until these fundamental parameters have consistently improved,ö he notes.

Global financial markets staged a recovery in mid-March, Lipper notes, with equities climbing and yields on the risky corporate and emerging market bonds falling on renewed speculation that the worst of the credit crunch might have passed. Better-than-expected US economic figures û particularly the first quarter 2008 GDP growth rate and the change in non-farm payrolls û also contributed to their recovery because they triggered optimism that the US may be spared an economic recession.

However, several fundamental parameters suggest that the global investment climate remains challenging, Wong says.

First, despite US interest rates being reduced aggressively since the third quarter of 2007, the US housing market remains difficult. High mortgage rates are deterring Americans from refinancing their mortgages or buying properties. As a result, property foreclosures and repossessions exhibit no signs of abating. Existing and new home sales recorded another decline of 2% and 11%, respectively, in March. These factors maintain the downward pressure on property prices.

According to the National Association of Realtors in the US, the median price of an existing home fell 7.7% in March from a year earlier in March 2007. With properties accounting for a significant portion of the collateral in asset-backed securities, falling property prices will continue to expose financial institutions to the risk of making additional write-downs on their asset-backed security portfolios in the coming quarters.

The second factor contributing to the challenging investment environment is the fact that the spread between the London inter-bank borrowing rate (Libor) and the US interest rate has yet to narrow back to the level prior to the outbreak of the US subprime meltdown in July 2007.

ôSuch a phenomenon reflects that financial institutions still anticipate more trouble in the period ahead and hence remain reluctant to lend,ö Wong says. ôSuch a disturbing situation, if persistently remaining unresolved, can deprive the global economy of the fuel to grow.ö

The US Federal ReserveÆs most recent decision on May 2 to expand the term auction facility reinforced speculation in this scenario,ö Wong says.

Other reasons include US unemployment data and food and natural resources prices.

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

Equity +5.96%
Real Estate +4.67%
Commodities +3.76%
Hedge/Long/Short Equity +2.80%
Mixed Assets +2.53%
Hedge/Multi Strategies +1.86%
Protected +0.50%
Guaranteed +0.47
Money Market -0.20%
Bonds -0.31%