Target set at 5pc gains next year but slowing global growth still a risk factor High oil prices and the mainland's economic control measures have crimped pension fund returns for Hong Kong employees this year, data compiled by pension consultant Watson Wyatt shows. Hong Kong pension funds achieved an average investment return of 11.7 per cent in the past 11 months, down from 29.5 per cent last year, according to the data. This included Mandatory Provident Fund accounts covering two million employees, combined with independent pension schemes covering about 900,000 employees. Leading pension provider Allianz Dresdner Asset Management chief executive Mark Konyn said this year's returns had been better than expected as many retirement managers projected returns of only 5 to 6 per cent. The pension fund managed by Allianz has reported a 13.6 per cent return this year. Mr Konyn said last year's return was exceptionally high because of the economic recovery from Sars and the three previous gloomy years, factors that would not be repeated soon. Moreover, worries over high crude prices and the mainland's economic austerity measures introduced in April took their toll on regional stock markets in the second and third quarters of the year, eroding the strong gains local pension funds posted in the first quarter, he said. However, things had turned around in the fourth quarter, Mr Konyn added. 'The pull-back of the oil price to below US$45 per barrel and speculation that regional currencies will appreciate relative to the US dollar have encouraged global investors to once again allocate more money to the region,' he said. 'Speculation that the mainland will revalue its currency, which coincides with the unwinding of previous short-term hedging strategies, has prompted a significant rise in fund flows into Hong Kong. This has boosted the performance of the local stock market and positioned it close to a four-year high.' Mr Konyn said the profit made by pension funds this year and last year had offset the losses posted in the previous three years. Pension funds suffered average losses of 10.1 per cent in 2002, 12.5 per cent in 2001 and 12.1 per cent in 2000. Mr Konyn said the pension funds were targeting 5 per cent returns next year, assuming Asia-Pacific stock markets would be generally bullish while a weak US dollar would support Hong Kong exports and economic growth. But he said there were also risk factors for the local pension funds next year. 'There is wide expectation that the global economy will slow in 2005 and that the United States credit boom that is now dissipating has no natural successor. Both Europe and Japan are unlikely to assume the mantle,' he said. 'US short-term interest rates will continue to rise, although there may be a hiatus in the early part of 2005, should US data continue to provide evidence that the economy is moving through a so-called soft patch.'