By Jonathan Kwok

THE stock market rally has helped funds in the Central Provident Fund Investment Scheme (CPFIS) recoup all their losses over the past year and even add some gains.

The third quarter was a stellar one with funds recording an average growth of 12.1 per cent while CPF-approved unit trusts rose 12.8 per cent, compared with the second quarter.

In the same three months to Sept 30, investment-linked insurance products in the CPFIS gained 11.4 per cent, according to data released last week from fund intelligence firm Lipper, the Investment Management Association of Singapore and the Life Insurance Association.

The bumper quarter means that average returns on CPF-approved unit trusts over the past 12 months are now in positive territory, with expansion of 9.06 per cent since Sept 30 last year. Similarly, returns on investment-linked plans are at 9.34 per cent.

This translates into average returns of 9.28 per cent for all CPFIS-included fund products over the period.

Improving market conditions were behind the funds rally.

Sentiment was bullish in July with signs of slowing unemployment and more buoyant business and consumer confidence. There was a dip in August with a brief correction in some Asian emerging markets but healthy gains returned in September.

The MSCI World Index, which tracks stocks across 23 developed markets, rose 14.5 per cent in the quarter. The MSCI Emerging Markets Index - it monitors indices in 22 emerging economies - grew 15.3 per cent in the third quarter compared with 28.4 per cent in the second. The August correction was the key factor in the relatively muted showing.

European emerging markets did well in the third quarter for the CPF-approved unit trusts, with an average increase of 26.22 per cent.

Unit trusts in the Asian emerging markets fared less well, with the China and Far Eastern emerging markets categories registering gains of 5.98 per cent and 13.14 per cent respectively.

The Far Eastern emerging markets category refers to funds with investments across different countries mainly in South-east Asia.

Among investment-linked products, the European emerging markets category performed the best with a 27.82 per cent gain in the quarter.

Lipper's senior research analyst for the Asean region, Mr Rajeev Baddepudi, said: 'The main drivers of demand, globally speaking, are more in the emerging markets than the developed markets. These drive the equity values in emerging markets up.

'The correction seen in Asia this August put some downward pressure on Asia, which means that the European emerging markets performed better this quarter.'

Mr Baddepudi pointed out that the sharpest correction in August occurred among China stocks, down 21.81 per cent amid speculation that the government might stem inflows into the stock market.

The correction had a ripple effect on the equity markets in Hong Kong, Singapore and Taiwan, he added.

This article was first published in The Straits Times.