Most Hong Kong pension funds have seen their modest first-quarter gains wiped out over the past two months, with fund managers blaming poor stock and bond markets for the lacklustre performance. About 300 pension funds reported an average first-quarter return of 4.5 per cent, according to consultant Watson Wyatt Worldwide. But fund managers said employees need not celebrate too soon - as their March flowers had been flooded by showers in the past two months. Global stock markets have been spooked by strong United States economic data and the attendant prospect of an interest-rate rise in the world's largest economy, soaring oil prices, macroeconomic cooling measures in China, worsening violence in Iraq and sporadic terrorist attacks. 'The losses in April and May were so severe that [they] have offset all gains from the first quarter. We expect local pension funds will only report flat returns for the first half of the year,' Allianz Dresdner Asset Management chief executive in Hong Kong Mark Konyn said. Allianz outperformed the market with an average 5.2 per cent return for its 20 pension funds but could not escape the recent market downturn. 'During April and May, the stock market fell, bond prices dropped and the interest rates were low,' Mr Konyn said. 'It was hard for any pension fund managers to achieve positive returns.' BOCI-Prudential chief executive Oscar Wong Sai-hung said: 'There were no exceptions. I think all pension funds in Hong Kong lost their first-quarter earnings in April alone. 'Further losses were made in May but the situation has at least become a bit more stable.' Mr Konyn believes pension funds could now hope for a full-year return of only 6 to 7 per cent, far below last year's 29.5 per cent. He urged employees to diversify risk through a balanced stock, bond and cash portfolio. Despite the spotty performance seen this year, Mr Wong said there was little evidence that employees were switching between fund managers. The Mandatory Provident Fund pension schemes cover two million workers who can choose how to invest individual and employer contributions across a range of investment funds.