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.
MPF reports disappointing returns in contrast to strong rally of Hang Seng Index
The Mandatory Provident Fund reported a return of 1.3 per cent for last month, a dismal performance compared with the Hang Seng Index and given the rising inflation in the city.
Last month's returns by the 447 investment funds under the MPF also happened to be lower than the 4.57 per cent average for the past three months and 6.04 per cent for the past six months, said data provider Lipper.
Not only did the fund managers fare poorly compared with the Hang Seng Index, which rose 6.8 per cent last month, it was doubly disappointing for the 2.4 million employees who contribute to the MPF as the returns could not even beat inflation.
In the first half, inflation stood at 3.4 per cent. The government expects full-year inflation to reach 4.6 per cent.
The nine MPF funds invested in mainland equities put in the best performance of all categories, reporting a return of 7.72 per cent. They were the only funds that beat the Hang Seng Index and matched the H-share index, which turned in an outstanding performance with a 7.7 per cent gain.
Lawmakers have been demanding the government reform the unpopular MPF scheme due to its high fees and underwhelming performance.
Louis Tse Ming-kwong, director of VC Brokerage, said many MPF funds had invested in bonds, which were not performing well as investors were worried about a possible rise in interest rates.
"Looking ahead, the stock markets in Hong Kong and on the mainland will benefit from the through train scheme, which starts from October and allows investors to cross-trade stocks in Hong Kong and Shanghai," Tse said. "The outlook for the bond market, however, is still haunted by the fear of an interest rate rise in the United States."
Rex Auyeung Pak-kuen, Asia president of US financial firm Principal Financial, said: "Going forward, I do see attention to be given to emerging-market equities and the EU will be the least favoured with the Portugal situation."