Mandatory Provident Fund (MPF)

Bad news for Hong Kong pension plan investors as jittery markets push MPF funds into losses

Contributors to the city’s Mandatory Provident Fund scheme lost an average of US$86.25 each from their pension pots in the first quarter, with US-China trade tensions to blame

PUBLISHED : Tuesday, 03 April, 2018, 10:53pm
UPDATED : Tuesday, 03 April, 2018, 11:14pm

Investors in Hong Kong’s retirement scheme the Mandatory Provident Fund lost an average HK$677 (US$86.25) each from their pension pots in the first quarter of this year as financial markets struggled in the face of escalating trade tensions between the US and China.

The 481 funds in the MPF lost an average 1.85 per cent in value in March, extending February’s 3.85 per cent losses and wiping out January’s 5.68 per cent gain, resulting in an average loss for the first quarter of 0.26 per cent, according to data from MPF fund operator Convoy Financial Services.

The trade tension between the US and China were the main reasons for the downturns in global stock markets that hurt MPF performance, according to Kenrick Chung, director of product management at Convoy Financial Services.

“Looking ahead, performance would depend on the development of the US-China trade dispute. If it escalates, the MPF would continue to perform badly for the rest of this year. However, if the US and China can reach an agreement to prevent a full-scale trade war, the MPF would still do well this year as the economies in China and Asia remain solid,” Chung said.

The MPF performed less well than Hong Kong’s benchmark Hang Seng share index in the first quarter, with the index adding 0.6 per cent.

In January, the Hang Seng rose 10 per cent, but markets turned around in February when the US and China trade relationship turned sour. An improved US economy also led to an interest rate rise last month, which Hong Kong followed as its currency is pegged to the US dollar.

The MPF pension fund, which had HK$843.5 billion (US$107.5 billion) in assets last year, covers 2.8 million people in the city. Salaried employees can choose to invest the contributions they and their employers make into the different MPF funds, which cover stocks, bonds, money markets and mixed assets.

All MPF funds with stock investments reported losses last month. The best performers were global bond funds with a positive return of 0.97 per cent, followed by money market funds with average returns of 0.85 per cent, according to Thomson Reuters Lipper.

Among equity funds – the most popular investment choice with 42 per cent of members choosing them, US equity funds lost 3.7 per cent last month, funds covering other equity markets lost 3.47 per cent while Hong Kong equity funds lost 2.66 per cent.

Active Hong Kong dollar mixed-asset funds, which invest in both stocks and bonds, lost 1.72 per cent, while balanced Hong Kong dollar mixed-asset funds lost 1.29 per cent. These mixed asset funds account for 37 per cent of all MPF assets, the second most popular choice among contributors.

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Elvin Yu, a principal at pension consultancy Goji Consulting, said uncertainty in stock markets worldwide had been growing, and hence MPF investments were expected to be volatile for the rest of this year.

“MPF members are reminded not to focus on short-term volatility and market events, as MPF investment is for the long term,” Yu said.

“However, members are also reminded to review portfolio allocation to ensure it meets their profiles. For members who have already enjoyed the equity market rally last year, it might not be a bad idea to rebalance and reduce risk for the time being, but go for wider diversification such as through multi-asset strategies,” Yu said.