Hong Kong loses shine in MPF report card

Funds bring average gain of 2 per cent for the first half but investment schemes dedicated to local and mainland equities yield negative returns

PUBLISHED : Saturday, 05 July, 2014, 1:51am
UPDATED : Monday, 07 July, 2014, 10:28pm

Funds in the Mandatory Provident Fund scheme returned an average of 2 per cent in the first half. However, while most fund types in the scheme registered positive returns, the most common funds, such as mainland Chinese, Hong Kong and Japan equities, were in the red.

According to the March data published by the Mandatory Provident Fund Schemes Authority, 37 per cent of the assets are invested in Hong Kong-mainland equities, making it the single biggest asset category.

Funds dedicated to Hong Kong equities (including Hong Kong-listed mainland equities) on average lost 0.12 per cent, net of fees, in the first half, according to Lipper, a Thomson Reuters data firm. The Hang Seng Index fell 0.5 per cent in the period.

Like last year, Japanese equities were the biggest wild card, thanks to the volatility introduced by the government's quantitative easing programme. The country's equities funds were the worst performers in the first half, losing 3.05 per cent.

The worst-performing fund was the AIA Basic Value Choice - Japan Equity Fund, which lost 6.1 per cent.

United States equity funds continued to do well. They returned 5.57 per cent in the first half, an average gain of 22.4 per cent over the past year and 109 per cent over the past five years.

Slowing economic growth kept mainland equities down, as did the anti-corruption campaign, dubbed by insiders as "public sector austerity".

Erwin Sanft, the head of China and Hong Kong equity research at Standard Chartered, said the clampdown was affecting the ability of authorities to make spending decisions for major projects for fear of drawing the attention of graft busters.

"There have been no new projects, no revisions of existing contracts. Officials have been arrested and there has been great uncertainty over who is in charge. There is a climate of fear around investigations … around people being detained," Sanft said.

That has contributed to a steady exodus of funds out of mainland China and into developed markets such as the US.

Sanft, however, said the tide had shifted somewhat in the past two months, with more capital coming back into emerging markets. "Some feel that a lot of gains have been made [in US equities]," he said.

First-half MPF results also point to a quiet ascendancy of equities over bonds. Hong Kong dollar bond funds lost money, although a negligible amount. Yuan bond funds slipped 0.84 per cent during the period.

All the top funds were in equities in the first half. "Other equities", which include just three AIA funds invested in North and South American equities, performed the best, returning on average 5.67 per cent.

The best-performing MPF fund was Bank of East Asia's Greater China Tracker Fund, returning 8.88 per cent.