The stock market rally at the start of this year helped the city's pension fund turn around in January to record one of its best months after a disastrous year.
The 429 funds registered in the Mandatory Provident Fund gained on average 4.9 per cent in January, according to data provider Lipper.
The MPF, which stood at HK$336.9 billion at the end of September, and covers 2.5 million employees, owes much of its recovery to the rally in stock and bond markets. The Hang Seng Index rose almost 2,000 points, or 10.6 per cent, last month alone, making it the best January for the local market since 1996.
Louis Tse Ming-kwong, director of VC Brokerage, said the market rally was prompted by stonger US economic figures and the united efforts of the European leaders to surmount the sovereign debt crisis.
'Investment sentiment worldwide has improved but whether this will continue for long will depend on the corporate earnings results that will be announced in the following weeks,' Tse said.
January's strong MPF performance, however, still could not erase the losses incurred last year, when the funds on average lost 8.41 per cent. Last year was the second-worst performance since the launch of the scheme in 2000 - during the global financial crisis in 2008, MPF funds plunged by an average of 26 per cent.
Last month equity funds, the second-most-chosen MPF investment vehicle that constitutes 33 per cent of all fund assets, were the best performers, returning 7.39 per cent. They were the worst performers last year, with an average loss of 15.11 per cent while the Hang Seng Index dropped 20 per cent.
Mixed-asset funds, the most popular fund choice that account for 42 per cent of all MPF assets and are invested in a combination of stocks and bonds, gained 4.69 per cent last month, following a 7.27 per cent loss for the whole of last year.
Besides these two top performers, bond funds returned 1.71 per cent while money-market funds gained just 0.01 per cent.
Principal Financial Group's Asia president, Rex Auyeung Pak-kuen, said he believed the market would continue to be volatile and urged MPF contributors to stay focused on long-term investment instead of paying too much attention to short-term market movements.
It was a view echoed by Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming. 'We are not yet out of the woods as the structural problems are far from being resolved,' Wong said. 'For employees, the key challenge is to figure out a long-term investment strategy that beats inflation amid market volatility and low interest rates.'
The MPF requires employers and employees to contribute 5 per cent of their salary, up to a maximum of HK$1,000 a month, into funds run by banks, insurance firms or fund companies. Employers choose the fund provider but employees choose the investment strategy. Workers can collect the capital and the returns only when they retire.