Be prudent in times of turmoil, analysts warn
The past week's market turmoil brought heartburn to many shareholders. Analysts say it should prompt employees to review Mandatory Provident Fund investments.
Launched in 2000, the MPF is a compulsory retirement plan in which Hong Kong employers and employees each contribute 5 per cent of monthly salary. The maximum contribution is HK$1,000.
Under the scheme, the employer chooses a provider - a bank, insurance company or fund house - and the employee decides how to invest the contribution. Funds may be withdrawn only at retirement or when leaving Hong Kong permanently. The city's 19 MPF providers offer a combined 300 funds. By September 30 last year, about 2.38 million employees and self-employed people had registered under the MPF scheme, which had assets of HK$257.36 billion - an average of HK$108,000 per person.
Mixed-asset, or balanced, funds - which invest in a combination of stocks and bonds - are the preferred investment choice, with a net asset value of HK$130.58 billion, or 51 per cent of all MPF assets. This is followed by equity funds, with assets of HK$68.98 billion, or 26 per cent. Capital preservation funds, which invest mainly in bank deposits, hold 11 per cent of assets, and guaranteed funds 10 per cent.
Equity funds were the best performers last year, with a 25.19 per cent return, beating the overall average of 15.93 per cent. This was followed by mixed-asset funds, at 14.98 per cent and bond funds, with 5.27 per cent.
'Our view is that slowing growth in the US and its impact upon investor sentiment globally will create more difficult investment conditions for 2008,' said Mark Konyn, chief executive of RCM Asia-Pacific, part of pension provider Allianz Group. 'Conventional wisdom would cause investors to question their equity allocation and to consider more developed markets over emerging markets, and to favour fixed income over equities more generally.'