The Mandatory Provident Fund, the retirement scheme that covers 2.4 million people in Hong Kong, reported a 0.56 per cent loss in the first half of the year, worse than putting money in the bank but beating the stock market's benchmark Hang Seng Index, which fell 8 per cent.
Most equity and bonds funds made losses, with the worst performers being China equity funds and the best ones, Japan equity funds.
Fund managers warn of a roller-coaster ride in the second half of the year.
The 458 MPF investment funds reported an average month-on-month loss of 3.24 per cent last month, bringing the average loss for the first half of the year to 0.56 per cent, according to data provider Lipper. That compares with a gain of 3.21 per cent in the first half of last year.
Almost all categories of funds suffered losses in the first half, with the exception of the most conservative money market funds, which invest in bank deposits, or equity funds investing in Japanese, United States and European stocks.
Japan equity funds were the best performers, with an average gain of 19.31 per cent, while US equity funds climbed 12.18 per cent and European ones rose 4.52 per cent.
China equity funds were the worst performers with an average loss of 12.58 per cent, followed by South Korean equity funds, which lost 12.04 per cent.
Bond funds, traditionally seen as a safe bet, recorded a loss of 3.8 per cent.
Hong Kong equity funds declined 6.31 per cent, while popular mixed-asset funds, which invest in both stocks and bonds, fell an average of 0.98 per cent.
Principal Financial Group Asia president Rex Auyeung Pak-kuen said markets had been bumpy in the past two months after the US showed signs of planning to end its monetary easing policy, and that had hurt MPF performance.
"Until the US Fed will be more definite on its policy, this bumpy ride will continue," Auyeung said. "The slower economic growth in China is not helpful to the investment market, either."
Mark Konyn, the chief executive of Cathay Conning Asset Management, said MPF investors preferred to invest in China stocks, which were not doing well.
"China stocks have been heavily out of favour since the early part of the year as the economy has slowed," Konyn said. "Ironically, the best-performing market, Japan, is not well represented in most MPF accounts."
He said MPF investors would face more difficulties in the second half because of continued market volatility.
Hong Kong Investment Funds Association chief executive Sally Wong Chi-ming also predicted more volatility due to uncertainties over monetary easing in the US.