Hong Kong's compulsory pension system, the Mandatory Provident Fund, reported an average gain of 6.42 per cent in the first half of the year. MPF equity funds had their first positive performance since their launch in December 2000, rising an average 13.11 per cent. Funds remain an average 7.11 per cent lower since inception, according to figures from the Hong Kong Investment Funds Association.

'Retirement funds have recorded a very strong quarter's performance supported by resurgent equity markets that have had their strongest showing since the final quarter of 1998,' said Mark Konyn, director at Allianz Dresdner Asset Management (Adam).

'We are encouraging our investors to reassess their current allocation and try to take into account that bonds are likely to not deliver the same level of performance and are likely to be more volatile in the coming period. We are expecting a continuation in this better environment for equities.'

He said about half the money currently in Adam's MPF schemes was in more conservative strategies, which had delivered positive returns in the past two years. Investors should think about allocating their monthly contributions to funds with a higher proportion of equities.

'Investors should be gradually moving back up the risk curve,' said Geoff Lewis, head of investment services at JF Asset Management. 'Those that are still heavily in cash or in bonds need to be switching more towards to equities.'

Mr Lewis does not expect a major downtrend for bonds, however, as economic data is not positive enough to suggest growth will create inflation concerns in the short term. A consolidation in equity markets after the latest liquidity-driven rally could be the signal to buy more stocks, he said.

'In a balanced portfolio we would still recommend being only slightly underweight bonds - we still see them as valuable diversifiers. With these volatile markets, there is a lot to be said for investors leaving the judgment between asset classes to the fund manager and maybe holding some balanced funds,' he said.

Kerry Ching, head of institutional business at Invesco, said investors in its MPF scheme had been fairly aggressive from the start. At the outset of the MPF, about 60 per cent of cash was invested in growth and balanced funds, which have equity allocations of 70-100 per cent. The figure has since dropped to about 50 per cent due to a decline in markets over the past few years. Only about 9-10 per cent of assets were invested in the capital preservation fund, which is similar to a Hong Kong dollar money market fund.

'The market has picked up quite a bit in the past few months but we are still holding a fairly cautious view - we don't think it has shown very clear signals of which direction it is going. Investors in general should not be too quick to jump into the equity market. They should take a balanced, diversified approach,' she said.