Greater China funds posted a loss of 1.62 per cent for the month, Lipper said, against an average gain of 5.42 per cent for all funds. Emerging markets bond funds and high-yield bond funds kept their lead for the year.

Equity funds in general ended in positive territory for the first time since November, rising more than 7 per cent. European equities made the biggest gains, rising 12.91 per cent. Emerging markets equities rose 12.77 per cent, while financial equity funds and European single-country funds also performed well. Equity funds invested in North America closed the month 7 per cent higher.

Japanese equity funds were the other losers for the month, while both equity and bond funds invested in Hong Kong ended in negative territory, down 0.72 per cent and 0.06 per cent respectively.

Bond funds gained an average 2.59 per cent in April, with emerging markets debt up 4.75 per cent and high-yield debt 5.08 per cent higher. Asia-Pacific bond funds rose an average 1.38 per cent while European bond funds climbed 2.48 per cent, helped by a strengthening euro, making them the best performers over a one-year period with a 30.72 per cent gain.

'Despite uncertainties brought by Sars and geopolitical tension, many Asian bond fund managers think Asian bonds could still have more upside, given persistent low inflation, solid credit fundamentals and attractive yield relative to returns on cash,' Lipper said. 'Most Asian governments continue to employ loose monetary policies to stimulate domestic demand; this high liquidity will support a healthy Asian bond market.'

The Sars outbreak brought a sharp change in sentiment towards China-related funds late in the month, causing fund managers to become cautious. But they had not drastically cut their weightings in affected markets, Lipper said. Sars caused Asian funds to underperform last month, edging up an average 1.05 per cent against a 9.9 per cent appreciation for funds invested outside the region.

Asia-Pacific funds were likely to be volatile in the short term due to Sars uncertainty, Lipper said. But Asian markets remained linked to the US, where a mild recovery would have a positive impact on the region. 'Over the longer period in 2003, we expect non-Japan Asian markets to outperform global markets modestly, because they remain undervalued relative to the US and Europe, their economies should grow faster and a reduction in risk aversion globally should eventually see capital flows to the region pick up later this year,'' Lipper said.

Fund managers generally believe regional equities remain undervalued, according to a monthly survey from Merrill Lynch. They remained overweight in cash and slightly overweight in equities but had lowered weightings in Chinese equities.

Geoff Lewis, head of investment services at JF Asset Management, said an end to the war in Iraq had removed one uncertainty from global markets, but did not cure all the problems.

Many Wall Street companies had beat their much-reduced earnings estimates, but economic data for the US and Europe was still downbeat, he said. He believes Sars will not make a difference to Asia's long-term prospects.

'Asia has had an improvement in return to equity over the last three or four years while the US has had a decline. Asia has a better dividend yield than the US and profits have grown,'' he said. 'By rights Asian markets should be higher than they are today.'

With the outlook still cloudy, investors are remaining cautious.

Sally Wong, executive director of the Hong Kong Investment Funds Association, said Sars had dampened investment sentiment particularly in April, when fund sales dropped. Sales have started picking up this month.

'In terms of product launches, guaranteed funds continue to dominate,' Ms Wong said. 'In terms of retail investor interest, bond funds and guaranteed funds continue to be the most popular sectors.' Mr Lewis said weakness in regional markets could bring some buying opportunities. He recommended funds with the flexibility to move between different assets classes.