Mandatory Provident Fund (MPF)

MPF back on track in third quarter thanks to QE3

Retirement funds record an average 4.6pc return, bouncing back after loss, but they still fare worse than the Hang Sang Index

PUBLISHED : Friday, 05 October, 2012, 12:00am
UPDATED : Friday, 05 October, 2012, 2:15am

The city's Mandatory Provident Fund (MPF) turned the corner in the third quarter, helped by monetary easing in the United States last month that boosted stock markets worldwide.

The 443 retirement funds, which cover 2.5 million employees in Hong Kong, recorded an average 4.66 per cent return in July-September, recovering from a loss of 3.64 per cent in the second quarter, according to data provider Lipper, a Thomson Reuters company. Third-quarter MPF average returns, however, fared worse than the Hang Seng Index, which gained 7.2 per cent.

In the first nine months of this year, MPFs gained 8.06 per cent. Mixed-asset funds, a blend of stocks and bonds that represent 42 per cent of MPF assets, gained 4.75 per cent in the third quarter, recovering from a 3.43 per cent loss in the second quarter.

Equity funds, the second-most popular MPF vehicle that accounts for 35 per cent of all fund assets, reported a 6.52 per cent return in the third quarter after a loss of 5.92 per cent in the previous quarter.

Bond funds returned 2.44 per cent in the quarter, while money market funds on average returned 0.08 per cent.

Almost all categories of funds ended in positive territory in the third quarter. The only losers were the Japan equity funds, which on average lost 1.24 per cent.

Paul Chan, chief investment officer of Asia ex-Japan at fund company Invesco, said MPFs benefited from the third round of the so-called quantitative easing, or QE3, in the US.

"Global stock markets rallied in September after the US Fed's announcement of another round of quantitative easing," Chan said, adding that the impact of QE3 had been consistent with that of QE1 and QE2, after which the global equity markets similarly rallied.

"Our outlook remains unchanged … Excess liquidity will continue to search for yield and inflation protection," Chan added.

Rex Auyeung Pak-kuen, Asia president of US pension and investment fund operator Principal Financial Group, said QE3 had given the market a good lift . "But one can't forget the EU problem is still there and the Chinese economy is slowing down," Auyeung said.

"The road ahead will continue to be bumpy and this is not the time to remove the seat belt."

Sally Wong, chief executive of the Hong Kong Investment Funds Association, said MPFs were also helped by certain encouraging signs from the US economic data.

"The structural issues in the euro-zone area will take time to be resolved," she said. "Also, the market will continue to be plagued by concerns over the potential US fiscal cliff and the slowdown in China and in other emerging markets."