Mandatory Provident Fund: are Hong Kong equities a wise investment choice after last month’s rout?

About 35 per cent of Mandatory Provident Fund’s funds are invested in Hong Kong equities

The 44 Hong Kong stock funds under the MPF scheme fell by 4 per cent on average in May, the worst among all fund categories

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A large number of employees covered by the Mandatory Provident Fund invests in Hong Kong stock funds. Photo: Shutterstock

Published: 11:45am, 3 Jun 2020Updated: 10:33pm, 3 Jun 2020

Hong Kong’s three million employees covered by the city’s compulsory pension fund face a difficult choice: should they stick with their Mandatory Provident Fund (MPF) portfolio or make wholesale changes after last month’s rout.

With the city’s stock market becoming the sentiment barometer for rising US-China tensions and given the uncertain economic outlook, some analysts say it is the right time to buy beaten-down equities while others advocate diversification into other markets.

The 44 Hong Kong stock funds under the MPF plan reported a 4 per cent loss on average in May, the worst performer among all fund categories, according to data from Refinitiv Lipper. In comparison, all 414 investment funds produced an average gain of 0.8 per cent.

The MPF had HK$969.46 billion (US$125 billion) of assets in 2019, with about one-third invested in local stocks, according to regulatory data. Hong Kong dollar deposits took up 14 per cent, while US stocks and Hong Kong bonds each accounted for 11 per cent.

“Looking ahead, it seems a V-shaped global economy recovery is unlikely, as the pandemic has disrupted not only the supply chain but also the desire on the demand side,” said Elvin Yu, chief executive of Goji Consulting, a pension consultancy.