Market turmoil takes 10pc off MPF schemes

PUBLISHED : Friday, 07 October, 2011, 12:00am
UPDATED : Friday, 07 October, 2011, 12:00am


Global market turmoil has eroded the pensions of the city's 2.5 million employees, with each losing HK$1 for every HK$10 held in their Mandatory Provident Fund accounts in the first nine months of the year.

The 417 funds in the compulsory retirement scheme dropped 10.68 per cent, according to Lipper. During the same period, the Hang Seng Index fell about 24 per cent.

Last month, the MPF investment funds dropped an average 7.75 per cent, compared with the index's loss of about 14.5 per cent. This was the worst monthly and nine-month result since the financial crisis in 2008.

Mark Konyn, the chief executive of RCM Asia Pacific, said the MPF results reflected the underlying uncertainties facing global investors.

'Emerging markets, including those in Asia, have underperformed in what is now a bear market for equities internationally,'' Konyn said. 'After taking account of the effect of higher inflation locally, the position deteriorates further as long-term savers such as those participating in the MPF system need to maintain the purchasing power of their nest-egg.'

He said many assets and stocks now 'look cheap'' so that the 'outlook for the global economy will be brighter'.

'What we can say for now is that much of the potential economic slowdown globally is being priced into equity markets,' he said.

The MPF scheme, which had HK$384.48 billion at the end of June, requires employers and employees each to pay 5 per cent of salaries, up to a maximum of HK$1,000 a month each, into schemes run by banks, insurance firms or fund companies. The money is invested in different funds chosen by employees.

Of the different type of investments, the worst performing were equity funds, with an average loss of 18.91 per cent in the first nine months and 12.01 per cent last month, according to Lipper. Equity funds were the second most chosen investment option in the MPF, representing 36 per cent of all assets.

Mixed asset funds including stocks and bonds - the most popular choice representing 43 per cent of all MPF assets - lost 9.48 per cent in the first nine months and 7.51 per cent last month.

Bond funds were the best performing in the first nine months with a 3.37 per cent return. But only 2 per cent of MPF assets were invested in them. The funds fell 2.04 per cent last month.

Money market funds - the least chosen investment representing only 0.34 per cent of all MPF assets - were the best performers last month with a gain of 0.02 per cent. They rose 0.03 per cent in the nine months.

Hong Kong Investment Funds Association chief executive Sally Wong said the investment outlook remained gloomy.

'The euro-zone debt crisis and US deficits will continue to besiege the markets. Meanwhile, emerging markets are grappling with their own set of problems and the performance of risky assets is likely to remain lacklustre,'' Wong said.