Standard & Poor's

MPF suffers loss on fall in stock markets

PUBLISHED : Tuesday, 25 July, 2006, 12:00am
UPDATED : Tuesday, 25 July, 2006, 12:00am

The Mandatory Provident Fund suffered a loss of 0.11 per cent in the second quarter because of the poor performance of the stock market, according to Standard & Poor's Fund Services.

Global stock markets slumped by double digits during the quarter, wiping out most of the its early gains, S&P said.

'In our opinion, as world central banks tightened, we witnessed a dramatic re-pricing of risk as market participants unloaded riskier assets on fears of both a dramatic slowdown in global GDP [gross domestic product] and EPS [earnings per share] growth,' said Cynthia Case, S&P's director of fund services.

Despite the second-quarter loss, the MPF's average return since the scheme's inception in February 2001 was 20.84 per cent.

The MPF schemes provide coverage for Hong Kong's 2.2 million workers. Employer and employee each contribute 5 per cent of the latter's salary to the fund.

The decline in global stock markets in the second quarter hit stock funds, which recorded an average loss of 0.71 per cent.

The loss trimmed their overall gain to 32.1 per cent.

Among equity funds, those that invested in the Asia-Pacific markets were the best performing, posting an average return of 1.08 per cent.

These were followed by Hong Kong equity funds with an average return of 1.03 per cent, and Europe equity funds with 0.27 per cent yield.

Funds that invested in Japan, North America and South Korea recorded negative returns on average.

'We view the recent declines as healthy corrections within a bull market and that the risk-reward ratio is becoming increasingly more attractive,' said Lorraine Tan, director of S&P's equity research.

'However, we expect interest-rate-driven volatility to persist throughout much of 2006 until evidence of a soft landing emerges,' she added.

S&P maintains an overweight rating on Hong Kong, particularly on the property market and on the consumer and utilities sectors.