Fund managers blame HSBC's poor showing in the stock market for the lacklustre performance of the Mandatory Provident Fund (MPF) last month despite a relatively strong rebound in the Hang Seng Index. The value of the city's pension fund edged up just 1.13 per cent in July despite improving fundamentals in the mainland economy and robust transactions in the local stock market of late, which drove the Hang Seng Index 1.83 per cent higher last month to 19,796.8 points. Castor Pang Wai-sun, head of research at brokerage firm Core Pacific-Yamaichi, cited the sluggish HSBC stock as the reason. 'The bank is a major component of many equity and mixed-asset funds. In some cases, it takes up over 15 per cent of a portfolio's value, which is why it can easily weigh down a fund even when the stock market is doing well.' Equity and mixed-asset funds - a blend of stocks and bonds - together made up more than three-fifths of the 435 investment funds under the MPF scheme. In July, equity funds gained 1.4 per cent while mixed-asset funds grew 1.15 per cent. Shares in HSBC plunged to a one-month low of HK$61.10 in the middle of last month after a US Senate report accused the bank of laundering US$7 billion of drug money from its Mexican operations to its US business in 2007 and 2008. The stock rose back to HK$65.70 in the past few days. The bank has had to set aside US$700 million for the scandal and its top executives have said the final impairment could be much greater. Analysts said any radical reversal of fortunes was unlikely for MPF funds in the near term until the political uncertainties in China and the United States were cleared at the end of the year. 'I don't think there will be any big turnaround in the stock market until the US government comes up with a new round of fiscal stimulus or interest-rate cut, but that may have to wait until the presidential elections,' said Eric Wong, head of research at Lipper. Wong added that anticipated structural reforms in the euro-zone economies would also affect the local stock market. Though not satisfactory, the MPF's performance in July still marked an improvement from an average loss of 3.64 per cent in the second quarter. It also offered better returns than bank deposit rates, which are now close to zero. The MPF has generated a return of 4.39 per cent so far this year, slightly below the composite consumer price index of 4.7 per cent in the first half.