The Mandatory Provident Fund (MPF) is likely to have better investment returns this year after performing poorly for the past two years, according to managers and pension experts. Edith Ngan Man-ling, chief executive of the Hong Kong operation of Invesco Asia, said employees could try to put more of their new MPF contributions into equities funds. Although these were the poorest performers among all MPF funds last year, they are likely to bottom out. The equities funds recorded an average loss of about 15 per cent last year, while the worst one recorded losses of more than 20 per cent. This was due mainly to volatile markets worldwide as a result of the poor global economy. She said a potential war between the United States and Iraq could cloud the stock markets in the first quarter, but the second half would be the time for better returns. 'Even if a war lasted some time, the market should be able to bounce back as investors should have already digested all the bad news at that time,' she said. 'We believe the equity markets would have a single digit growth in average for the whole year.' Ms Ngan believes the MPF equities funds in average will achieve positive returns of 7 per cent this year as a whole, from a loss of 15 per cent last year. She also recommended employees not to chase bond funds of their MPF plans, despite being the best performers last year with a gain of about 5 per cent. 'The interest rates worldwide are at the lowest levels in decades, which would offer little room for further rate cuts. This would mean the bond prices this year would not perform as high as last year, while we expect bond funds would also have a low performance,' Ms Ngan said. Launched in December 2000, the MPF is a compulsory retirement covering the two million working population. Employers and employees each need to pay 5 per cent of a monthly salary into different investment funds under MPF plans. Gloria Siu, director and general managing of pension consultant Gain Miles, also believes employees should have better returns on their pension investments this year. The stock markets this year would still be affected by the possible war between the US and Iraq, but she said in the case of a war ending quickly, stock markets worldwide would rebound substantially and would benefit the equities investment of MPF funds. Also, China's economic growth would be a driving force for a global economic recovery, she said. This was also positive factor for the stock markets. 'For those younger employees who could bear a higher risk, they could try the more aggressive investment strategy for their MPF funds,' Ms Siu said. 'This is because they would not get back their MPF contribution plus investment returns for at least 20 to 30 years down the track, and their investment would not be affected so much by the short-term volatility of the stock market. 'For those who are going to retire soon, however, they had better choose the more conservative guaranteed funds or the bond funds.'
