IN LATE February, when the market mood was at its bleakest and the protectionism tide seemed unstoppable, the smart money turned to Asia again and scoop up badly-battered blue-chips in the region.

It turned out to be a smart move.

Since early March, the Straits Times Index and Hang Seng have gained by more than 50 per cent. In contrast, Wall Street is only up by 28 per cent – despite the considerable attention and column inches lavished on it.

So it is interesting that after pouring billions into the region, the inflow of foreign funds suddenly slowed to a mere trickle of US$900,000 last week.

As I pointed out in today’s ST article, there are several reasons for the caution: June is traditionally a quiet month, with the school holidays here and the commencement of summer in the US and Europe.

For this reason alone, there is always this advice "Sell in May and go away" which dealers give to their clients.

But as others have pointed out, there is also rally fatigue. After going up more than 50 per cent on hopes of a V-shaped economic recovery, investors will want to see further evidence of the rebound before pouring more money into the market.

The problem is that the picture stays mixed. On the positive side, there is the Baltic Dry Index which has made daily gains for the past four weeks. As it is a measure of the freight rates for shipping commodities, it is a strong signal that China’s insatiable demand for raw materials is back.

But then there is also the fear of a sovereign debt crisis. US long-term bond yields has spiked. This indicates that investors want a higher return to compensate for the perceived higher risks in holding US government paper, since the US Fed’s printing presses go into full speed pumping money into the financial system.

It is not surprising that despite Wall Street’s 103 point gain last night, Asia seems quite muted today. Hang Seng is only up 40 points, while STI is up 27 points, with much of the gains being accounted by only two counters – City Developments and Jardine Matheson.

Going forward, it will be interesting to track the fund flows to see whether foreigners keep faith with the China growth story and continue to pour money into the region.

Next week should prove to be an interesting week.