Mutual funds registered for sale in Hong Kong posted an average return of 4% in October, with all asset classes except for commodities posting gains on average, according to Lipper data.

Equity funds were the best performers, posting an average return of 5.64%, followed by long-short equity hedge funds that posted an average return of 3.46%.

Commodities funds, which posted average loss of -0.06%, were dragged down mainly by agricultural products such as soybeans and wheat, says Eric Wong, head of Hong Kong research at Lipper.

Soybean prices declined in early October on reports of increased inventories, but recovered toward the end of the month, ending flat on speculation of increasing demand for alternative energy sources because of higher oil prices.

Among equity funds, portfolios that invest in Indonesia took the lead in October, posting an average return of 17.92%, followed by those that invest in India, China and Hong Kong.

ôIndonesian stocks were bolstered after the countryÆs central bank left the interest rate unchanged and hinted in early October that an interest rate cut might be possible by the end of 2007,ö Wong says.

Mining and energy stocks led the stock market in Indonesia on speculation of rising demand from China for natural resources products. Telecom stocks also contributed to the rally in the equity market after reporting satisfactory operating figures.

In India, panic-selling broke out in the equity market after the Securities & Exchange Board of India (SEBI), proposed new regulations that were considered by some as a deterrent for foreign institutions that would otherwise want to invest in Indian stocks. The Sensex 30 index plunged by almost 10% when the proposal came out, but the market staged a recovery toward the end of the month as the regulator subsequently scaled back the restrictions.

Equities continued to be driven by abundant market liquidity in Hong Kong.

The increase of banksÆ reserve requirement ratio in China and the speculation that the Chinese government would introduce more measures to cool the economy failed to hinder the rally in that stock market.

Meanwhile, bond funds gained 1.65% on average in October. With the US dollar declining last month around 1.46% and 1.68% against the euro and the pound sterling, respectively, due to reduction of US interest rate, bond funds invested in fixed income securities denominated in those two European currencies generally outperformed all others for the month.

Wong notes many global equity markets have now become oversold, with their 2008 forward price/earnings ratios, especially those in the developed markets, now declining to their average lows of the past several years.

However, in the backdrop of concerns over the US credit crisis and higher oil prices, global equity markets ôhave yet to depict any cleared buy signals,ö he says. ôMarket confidence has once again turned fragile, and investors anticipate more bad news to hit the financial markets in the near term.ö

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

Bond Average +1.65%
Equity Average +5.64%
Mixed Assets +3.40%
Money Market +0.88%
Commodities -0.06%
Guaranteed +1.81%
Hedge/Long/Short Equity +3.46%
Hedge/Multi Strategies +2.46%
Protected +2.68%
Real Estate +3.34%

Top 5 equity funds in October, with gain:

Lyxor Alpha Equity Fund û Hang Seng Index +29.22%
Celsius China Accelerated Growth HKD A +27.25%
Hang Seng China H-Share Index Leveraged 150 A +25.09%
Lyxor 3-Happiness China Fund +23.41%
Hang Seng Index Leveraged 150 A +22.69%

Bottom 5 equity funds in October, with loss:

EK Hong Kong & China -6.31%
JF Japan Technology Fund -4.54%
Celsius Financial Select Income USD A -4.10%
JPM Global Property Income -3.34%
Henderson HF Pan European Property Equities A2 EUR -2.96%

Top 5 bond funds in October, with gain:

Parvest Asian Convertible Bond C +7.85%
ABN Amro Global Emerging Markets Bond (EUR) A +6.10%
ABN Amro Global Emerging Markets Bond (USD) A USD +4.72%
SGAM Fund Bonds Converging Europe AC +4.06%
MLIIF Local Em Mkts Sht Duration Bond Fund A2 USD +3.48%

Bottom 5 bond funds in October, with loss:

Baring Directional USD A -0.73%
Principal Asia Pacific High Income Bond Fund -0.34%
UBS (Lux) Bond Fund - JPY B -0.18%
AllianceBernstein-Short Maturity Dollar A USD -0.12%
MFS Meridian Funds Limited Maturity A1 USD -0.07%