The Mandatory Provident Fund (MPF) is a compulsory pension fund designed by the Hong Kong government as a major protection scheme for the aged and retired residents. Most employees and their employers are required to contribute monthly. A 2012 study by the Consumer Council shows that almost half of the MPF funds have posted losses in each of the past five years.
MPF loses money in January with forecasts for tough year ahead
Average of 2.43pc lost by pension fund as US tapering causes capital outflows, hitting stocks
The city's Mandatory Provident Fund reported an average loss of 2.43 per cent last month on sliding regional stocks and currencies, according to data provider Lipper.
But the pension fund, which covers the city's 2.4 million employees, still managed to beat the Hang Seng Index, which fell 5.45 per cent during the month.
The 456 investment funds under the MPF had returned 8.09 per cent last year.
"With the US Federal Reserve last month confirming its plan to wind down its monetary easing programme, many fund managers and investors withdrew money from both the stock and the money markets in emerging economies. This hit Hong Kong and regional stock markets hard, which is reflected in the performance of the MPF," said Ben Kwong Man-bun, chief operating officer of brokerage firm KGI Asia.
Almost all categories of investment funds with stock exposure suffered losses, ranging from 0.03 per cent to more than 7 per cent.
The handful of funds that turned modest profits last month are the highly conservative bond funds, or Hong Kong money market funds, which invest in bank deposits.
Under the MPF scheme, employees can choose how to allocate their part of the retirement contribution among different funds. Most chose to invest in stock funds and balanced funds that invest in both stocks and bonds, according to data from the Mandatory Provident Fund Schemes Authority.
The worst performers last month were the China equity funds, which on average lost 7.07 per cent, followed by South Korean equity funds, with 6.73 per cent in losses, and Hong Kong equity funds, which lost 5.32 per cent.
US and Japan equity funds, which were the best performers last year with more than 30 per cent gains, reported losses last month. While US equity funds on average reported 2.58 per cent in losses, Japan equity funds lost 4.63 per cent.
Mixed-asset funds, the most popular choice, lost 1.92 per cent on average in January.
The best performer, and a lone exception in its group, was an equity fund investing in pharmaceutical and health sectors. It returned 1.54 per cent.
Other winners were the global bond funds, which on average returned 0.58 per cent; Hong Kong dollar bond funds, which returned 0.29 per cent; and yuan-denominated bond funds, which returned 0.29 per cent.
"The MPF is likely to have a tough year as stock markets globally are likely to continue to be affected by the US monetary policy. Even bond funds won't be a safe bet because they will be affected by a possible interest rate rise in the US and other markets this year," Kwong said.