S&P: Hong Kong Registered Funds Produced Average Return of -0.92% in Q2 2006

Singapore, July 18, 2006.

Retail mutual funds registered for sale in Hong Kong produced a modest average loss of 0.92% in Q2 2006, according to an analysis by Standard & Poor's Fund Services, the leading provider of fund research and analysis globally.

Based on Standard & Poor's data, the best-performing category in Q2 2006 was Derivatives, with an average positive return of 3.82%. The category includes funds that invest substantially in currency derivative instruments such as futures, forward contracts and options, in order to achieve capital appreciation. This was followed by Money Market Funds, which delivered an average return of 3.20%. Asset Allocation, which includes funds that invest in equity, fixed income, and money market securities, produced an average return of 0.14%. Equity and Real Estate Funds categories had negative returns of 2.35% and 3.25%, respectively.

Money Market GBP Enhanced Sector was clearly the best performer in Q2 2006, with an average return of 7.67%. Following close behind was Money Market CHF, which posted an average return of 6.71%. Fixed Income Global-Inflation Linked was also impressive, with an average return of 5.80%.

Under-performing sectors in Q2 2006 included Equity Asia Subcontinent, which declined 17.18%, Equity Smaller Companies Japan, which fell 12.30% on average, and Sector Biotechnology, 12.25% weaker on average.

Led by sharp sell-offs in emerging markets, many global stock markets declined by double digits during Q2, wiping out most of the first-half gains. "In our opinion, as world central banks tightened, we witnessed a dramatic re-pricing of risk as market participants unloaded riskier assets on fears of both a dramatic slowdown in global GDP and EPS growth," said Ms. Cynthia Case, Director of Fund Services.

Standard & Poor's expects the global economy to moderate in the second half of 2006, supporting respectable low double-digit earnings gains and preventing a major acceleration in inflation. "In a nutshell, we are looking for a soft landing to materialize," she added.

"We view recent declines as healthy corrections within a bull market and that the risk-reward ratio is becoming increasingly more attractive," said Ms. Lorraine Tan, Director of Standard & Poor's Equity Research. Despite consensus expectations for 12% global EPS growth in 2006, the S&P/Citigroup World Index is trading at just 13x 2006 estimated earnings. "At current levels, we believe the global markets are already discounting higher inflation and interest rates. However, we expect interest rate driven volatility to persist throughout much of 2006 until evidence of a soft landing emerges. We recommend that investors use the periods of weakness to position their portfolios for better equity market performance in the fourth quarter and early 2007," she added.

Standard & Poor's maintains an overweight rating on Hong Kong. "We are Overweight, the Hong Kong property sector as the fundamentals are intact in terms of a favorable imbalance of robust demand and limited supply across all three sub-sectors, namely residential, retail, and offices. In addition, economic factors, such as wages and employment rates, are improving."

"With the potential for increased earnings risk, we believe more defensive sectors are likely to outperform in the near term, and we are therefore Overweight the Consumer Staples and Utilities sectors. We also like the technology sector, as we believe the share prices already reflect a potential earnings growth slowdown," Ms. Tan added.

Concluded.

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