Mutual funds registered for sale in Hong Kong posted an average return of 0.70% in May, extending their average gain of 3.69% in April, according to Lipper data.

Commodities funds, which posted an average return of 2.07%, once again outperformed all other asset types. Most commodity prices posted gains, with crude oil prices delivering the strongest increase in May. Crude oil prices rallied 12.24% for the month on speculation of supply constraints in the second half of 2008. Soybeans also made a positive contribution to commodities funds. Soybean futures jumped 10.4% in May on speculation that supply from Argentina would be disrupted after negotiations between the Argentine government and farmers on export taxes failed. Platinum prices climbed 4.3% on concerns that supply might fall short of demand as production declined in South Africa.

Equity funds delivered an average return of 1.24%. Forty-seven of the 64 equity funds recorded gains for the month, with Equity Russia (+13.49%), Equity Brazil (+10.81%), Equity Markets Latin America (+10.12%), and Equity Markets Europe (+8.48%) occupying the top spots of the Lipper performance table.

Eric Wong, head of Hong Kong research at Lipper, says Latin American equity funds attracted strong buying from investors after the credit-rating upgrade of Brazil in late April. Russia and emerging Europe equity funds were driven by speculation that oil companies would be charged with lower taxation, he says.

The top three equity funds in Hong Kong in May were the Manulife Global Funds Russia Equity (+13.88%), Baring Eastern Europe (+13.57%), and BGF Latin American Fund (+13.30%).

The average return of equity funds was restricted mainly by Equity India (-8.63%) and Equity Indian Sub-Continent (-8.28%). IndiaÆs Sensex index fell 5% in May on reports that inflation continued to accelerate, adding pressure on the central bank to lift interest rates. Vietnam equity funds also incurred heavy losses after a report showed consumer prices in Vietnam jumped 25.2% in May û the highest since 1992 û and a credit rating agency cut the countryÆs debt rating, arousing speculation that Vietnam was heading towards a financial crisis.

Absolute return, bond, and protected funds posted average losses of 0.18%, 0.43%, and 0.50%, respectively.

Emerging markets and high-yield bond funds generally delivered better returns than other types of bond funds. The top three bond funds last month were Aberdeen Global-European High Yield Bond (+3.78%), JPM Emerging Markets Local Currency Debt (+3.36%), and Principal Asia-Pacific High Income Bond (+2.30%).

Emerging markets bond funds were lifted by a credit rating increase for Brazil, which spurred demand for developing nation debt, while high-yield bond funds were supported by several better-than-expected economic figures that lowered speculation the US might fall into an economic recession.

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

Commodities +2.07%
Hedge/Multi Strategies +2.06%
Hedge/Long/Short Equity +1.73%
Equity +1.24%
Money Market +0.27%
Guaranteed +0.14%
Mixed Assets +0.02%
Absolute Return -0.18%
Bonds -0.43%
Protected -0.50%