Singapore-based research firm GFIA released its latest Research Insights newsletter, which said that the Asia-Pacific market continued the rallies in the month of May, coupled with decreased risk aversion and capital inflows.

The MSCI AC Asia Pacific posted +12.2% while the ex-Japan version of the index jumped 13.9%. Singapore posted +25.2%, India +35.8% and Vietnam +28.0%.

According to GFIA, all across the Asian markets saw rallies, where even the worst performer, Shanghai, closed the month with 6.2%. Worth nothing is Australia's ASX AORD, which was up 1.8%, but 13% when translated to USD terms.

Good news from Taiwan and Japan
Taiwan was once again the best performer in the Greater China region in May as the Taiwan TWII rallied 18.7% for the month, the report said. Hong Kong also performed well with the Hang Seng Index appreciating 17.0% as liquidity remained strong. News of more investments from mainland China and the announcement Taiwan would join the World Health Organization provided additional stimulants for the Taiwan market in May.

The Japanese markets ended May much higher than the previous month with the Topix up 7.2% and the Nikkei gaining 7.9%.

South Korea lifts short selling ban
GFAI’s newsletter said that the Kospi had gained 9.0% in May, but this was attributed to the 6.4% appreciation of the KRW against the USD. The rally was led by consumer discretionary and materials stocks which are the beta plays of many local investors. Foreign investors have been net buyers of Korea for 12 consecutive weeks.

The ban on shorting for non-financial stocks was lifted on June 1 as the Seoul bourse has shown a clear sign of stabilizing. A report by the Korea Times said that the Financial Services Commission (FSC) had banned the practice last October when the global stock market suffered crashes in the aftermath of the collapse of Lehman Brothers.

India posted best month in 17 years
GFIA cited Bloomberg's report which said May had been the best month for the Indian market in 17 years. The Indian BSE30 ended the month up 35.8%, though approximately half the performance came on May 18 when the results of the general elections were known. There was then a buying panic as market players that failed to get their trades done on the 18th rushed to get it on the 19th.

Latin American equities posted more than 20%
May was another rewarding month for Latin American investors. Argentina's Merval, Brazil's Ibovespa and Chile's IPSA shot up 23.5%, 23.6% and 23.1% respectively. Mexico's IPC was the laggard of the region at 16.1%.

Due to the swine flu alert, Mexico's GDP reportedly shrank 8.2% in the first quarter of 2009, and another 5.6% in May.

Zimbabwe is best performing market in MENA Plus region
The MENA Plus region was a strong performer in May with the MSCI EFM EMEA up 18.0% though returns could be largely attributed to the Africa and CIS regions (MSCI FM Africa: +34.7% and MSCI Central/Eastern Europe + CIS: +27.7%). The MSCI Arabian Markets index returned a muted 8.9% for the month.

The report cited the rising oil prices had been the primary driver behind the rally, though the impact had been much greater in Russia than in the Arab countries. The recovery in commodity prices, especially in Zambia, which relies heavily on copper exports, was also the reason for the rally in Africa, GFIA said.

Emerging market currency posted strong month
Emerging market currencies experienced strong appreciation against the USD over the month, with the Brazilian real being the largest mover, appreciating 9.0%. Although the growth in global risk appetite is a factor in boosting demand for emerging market currencies, the out-performance was driven more by sharp increases in commodity prices.

June performance
The research firm said it has started to see some pullbacks in the markets with month-to-date numbers of the market indices showing flattish to negative numbers in June. Worst hit are the Central and Eastern European markets. Fears of an "Asian Crisis" in the Central/Eastern European region are increasing as current account deficits threaten to overwhelm the region. Much of the liabilities are in the form of foreign-denominated debt, which is similar to Asia in the 1990s, and will have a crippling effect on the issuers should the local currencies plunge.

Corporate website: http://www.gfia.com.sg/index.aspx?uc=home