Following a reasonably robust performance in April, regional markets were mixed in May. Rising oil costs, inflation worries and the increasing threat of government intervention to control prices for strategic commodities all took their toll on market sentiment.In the Asia ex Japan universe Indonesia and Singapore were the best performing markets while India, Hong Kong and Taiwan were the worst. China was particularly hard hit by the tragedy of the Chengdu earthquake, in which tens of thousands of people sadly perished.The US Dollar experienced a rebound in value relative to a number of Asian currencies. A notable exception was the rise in the commodity sensitive currencies of Australia and New Zealand, aided by their materially high cash rates. Commodity prices moved higher once more, a consequence of crude oil reaching another all-time high price in US Dollars. For the month oil rose 12.2% to $127.35, albeit off its closing $132.57 intra-month high.The price of oil has risen 152% from its recent low in January 2007, and is up 31.8% in the calendar year to date. Energy was unsurprisingly an exceptional performer for the month. Other resource-related stocks also performed favourably. An environment of rising inflation along with concerns surrounding the sustainability of economic activity, particularly in light of weakening consumer financial conditions, had negative implications for the Financials and Property sectors.Businesses that service the mining and energy sectors are experiencing high levels of demand and are in the enviable position of margin expansion. In contrast, a number of other sectors are suffering from rising input costs and weakening demand, resulting in margin compression and in many cases downward earnings revisions.
